Jinhui Shipping and Transportation Limited Annual Report 2017

Plain-text annual report

ANNUAL REPORTJumbo Interactive Limited2 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 3 With a stronger alignment with Tatts, Jumbo can push ahead with its plans for continued growth. Table of Contents 4 6 8 10 12 18 20 22 35 36 42 43 44 46 47 79 80 84 86 Introduction Highlights Letter from the Chairman Letter from the CEO Review of Operations Leadership Team Financial Report Directors’ Report Auditor’s Independence Declaration Corporate Governance Statement Consolidated Statement of Proﬁt or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Directors’ Declaration Independent Auditor’s Report Shareholder Information Company Information 4 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 Introduction Jumbo has built an industry-leading internet lottery business that has clearly hit the mark with a younger tech-savvy consumer. From the 5-star rated OzLotteries App to the innovative social media campaigns, Jumbo has clearly been able to deliver a customer experience that younger demographics have been looking for. Lotteries have had wide appeal for decades providing entertainment to millions as well as raising valuable funds for worthwhile causes. Jumbo focuses on bringing all the essential elements of lotteries together with the latest Internet technologies to create a sustainable business for the long term. The momentum that Jumbo has built over the last decade is set to continue with new long term agreements and a stronger alignment with Tatts, the ofﬁcial lottery license holder in Australia. This sets the stage for new possibilities for Jumbo with an expanded product portfolio and a closer working relationship with the lottery industry. JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 5 6 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 Highlights A 21% increase in Net Proﬁt After Tax was the result of a greater focus on the Australian business. 7 year Total Transaction Value Number of large Jackpots 101 22 76 21 200 150 100 50 0 153 145 128 110 107 38 36 34 45 31 FY 11 FY 12 FY 13 FY 14 FY 15 FY 16 FY 17 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 7 Revenue (continuing operations) 12 MONTHS TO 30 JUNE 2017 $32.4m 5% decrease over the previous year Number of Large Jackpots OZLOTTO/ POWERBALL JACKPOTS OF $15MILLION OR MORE, 12 MONTHS TO 30 JUNE 2017 31 31% decrease over 12 months Net Proﬁt After Tax (total operations) 12 MONTHS TO 30 JUNE 2017 Net Proﬁt After Tax (continuing operations) 12 MONTHS TO 30 JUNE 2017 $5.64m 21% increase over 12 months $7.60m 4% increase over 12 months Dividends Declared FULLY FRANKED DIVIDENDS FOR THE 12 MONTHS TO 30 JUNE 2017 8.5c 21% increase over the previous year Share Price AS AT 30 JUNE 2017 $2.66 105% increase over 12 months Letter from the ChairmanDear ShareholderThe ﬁnancial year, ended 30th June 2017, focused locally both on the growth of the lottery business and expanding the Australian Charity lottery supply. This has proved to be rewarding with the growth of sales (on a like-for-like basis) in both sectors, despite a year of lower lottery jackpots. This growth has once again allowed your Board to revise its dividend policy.In addition, Management successfully concluded a further ﬁve year contract with Tatts Lotteries with part of this agreement allowing Tatts to become a shareholder in the Company by issuing 15% of the issued capital to them and the grant of 3,474,492 options exercisable within twelve months of the date of issue. As a result of the increase in cash reserves, your Board agreed to distribute, by way of a special dividend, a further 15 cents per share to all shareholders. This I am pleased to say is the 18th dividend distributed to Shareholders since the dividend policy was ﬁrst introduced.The net assets as at 30th June 2017 have increased to $42,900,000 hence the rationale to make a special dividend payment. However, the Company remains committed to explore growth opportunities to ensure the continued improvement in proﬁt performance.In closing I would like to acknowledge that the year’s success of the Company would not have been possible if our staff, led by Mr. Mike Veverka, the founder and CEO, had not continued their dedication to their respective areas of expertise.I would like to thank the Board and our Management team for their ongoing dedication and to those shareholders who continue to support us and who are now seeing the results of this.I and the Board look forward to answering any questions you may have at our Annual General Meeting which is scheduled to be held on the 25th October 2017.Yours Truly David K Barwick Chairman8 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 9 Management successfully concluded a further ﬁve year contract with Tatts Lotteries with part of this agreement allowing Tatts to become a shareholder in the Company. Letter from the CEOWith new long term agreements and a stronger alignment with Tatts, Jumbo can push ahead with its plans for continued growth. Jumbo has built up signiﬁcant momentum by delivering exactly what the tech-savvy consumer is looking for. The new long term agreements with Tatts allows this momentum to continue and challenges the Jumbo team to think further into the future. Being awarded a 5 star rating for the OzLotteries App was a major achievement last year and now the challenge is to keep it. Financially we delivered a 21% increase in Net Proﬁt After Tax to $5.64 million after it was decided to exit the German market. This business was contributing a loss of approximately $2 million per year with little hope of improvement. Refocusing attention onto the Australian business has come at the right time just as the new Tatts agreements have been ﬁnalised and the charity business is gaining momentum. The natural fluctuation in the number of major jackpots resulted in 2017 seeing a lower than normal number of jackpots $15 million and over. This 31% decline was the main reason for the 5% decline in ticket sales and revenue. However an analysis of sales at the same jackpot level shows a steady increase in ticket sales demonstrating sustainable growth. I wish to thank the entire talented Jumbo team for their dedication and look forward to the year ahead. Mike Veverka CEO and Founder10 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 11 With new long term agreements and a stronger alignment with Tatts, Jumbo can push ahead with its plans for continued growth. 12 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 Reviewof Operations JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 13 Financial Performance The random occurrence of major jackpots available to making their mark. The number of Facebook followers has increased again from 114,500 to 134,000 over the past lottery players are an important driver of sales and FY17 year. A fun and innovative “Lotto Face” campaign was run on Instagram inviting players to post their “I just won the lottery” face. This campaign brought in over 1,700 new followers on Instagram. Twitter is currently being used for timely jackpot promotions and lotto results and currently has over 1,500 followers. A majority of Jumbo’s customers interact with social media through their mobile devices with double the interactions through mobile versus desktop. This afﬁrms Jumbo’s efforts on continual improvements to the OzLotteries app. Charity Lotteries To compliment the well known national lotteries available on OzLotteries, Jumbo has added Charity Lotteries that have signiﬁcant customer appeal. Most importantly these extra sales do not come at the expense of national lottery sales as customers are choosing to add extra games while purchasing the national games. This is evident in the average customer annual spend KPI which has increased from $322 to $348 over the past 12 months. Sales of Charity lotteries have more than tripled to $3.8 million over the past 12 months due to better product integration into the website and app as well as portfolio expansion. The Mater Prize Home has been added in the past year bringing the total number of charities to ﬁve. The games now include the Mater Prize Home, Surf Life Saving Lotteries, Endeavour Foundation, Act for Kids and the Prince of Wales Hospital Foundation. Interestingly, Charity lotteries have been most successful with the younger demographic enhancing OzLotteries reputation as the lottery app for the younger generation. Germany Closure During FY17, Jumbo closed the loss-making German business to focus on the Australian business. The German business contributed an after tax loss of $2.0 million to the FY17 results. No signiﬁcant expenses are expected in the year ahead. The international lottery industry still has signiﬁcant growth potential however Jumbo is taking a more conservative approach to evaluating those opportunities. saw 31% fewer major Jackpots than the previous year. This resulted in only a 5% decline in ticket sales (TTV) to $145 million and revenue to $32.4 million, however Net Proﬁt After Tax increased 21% to $5.64 million. This resulted in only a 5% decline in ticket sales (TTV) to $145 million and revenue to $32.4 million, however Net Proﬁt After Tax increased 21% to $5.64 million primarily due to the closure of the loss-making German business. Excluding the effects of this closure, the Net Proﬁt After Tax from continuing operations increased 4% to $7.6 million demonstrating growth despite lower Jackpots. EBITDA (earnings before interest, tax, depreciation and amortisation) also increased 3% to $14.1 million for the same reason. Continued Mobile App and Social Media Improvements With customer behaviour continuing to trend towards mobile, efforts were made to continually improve the OzLotteries App. The current version of the app enjoys a 5 star rating by iTunes, with glowing customer feedback. All products including the new Charity games are now available for purchase natively in the App. In previous years some games where sold via a “frame” method which was quick to implement but slowed down the experience. Customers are regularly interviewed for feedback on their purchase experience and the feedback is used to improve the app. As a result of this process, the purchase conversion rate has increased 20% over the year and the iOS App Store Rating has increased from 1.9 to 5 stars. Jumbo is also driving social media to enhance the overall players experience as well as building the OzLotteries brand. Facebook continues to be the dominate social media platform however Instagram and Twitter are also Extended contracts with the Tatts Group - New Possibilities In May 2017, Jumbo expanded its decade-long commercial relationship with Tatts Group Limited (ASX:TTS), with a long term extension and expansion of its existing lottery reseller agreements. The relationship was further strengthened by Tatts subscribing for a substantial shareholding in Jumbo. This sets the stage for new possibilities for Jumbo with an expanded product portfolio and a closer working relationship with the ofﬁcial Australian lottery license holder. Jumbo has begun the process of including the popular “Set for Life” game in its game portfolio available to players. All current reseller agreements (NSW, Victoria, South Australia, Northern Territory and Fiji) have been extended for ﬁve years and then continue on a 12-month rolling basis beyond 2022. Jumbo growth at 17% CAGR over 7 yearsJumbo’s flagship website www.ozlotteries.com has delivered a consistent 17% compound annual growth rate over 7 years, absorbing the natural fluctuations in jackpots. This has been underpinned by a growing customer database and a trend in consumer behaviour towards mobile purchases. To ensure sales are not on a declining trend, sales are analysed on a like-for-like basis at speciﬁc jackpot levels over a number of years. This analysis shows a steady increase in sales further conﬁrming the general growth trend.TTV$OZ Lotto TTV per $15m DrawFY14FY15FY16FY17TTV$Powerball TTV per $15m DrawFY14FY15FY16FY17TTV$TTV from Jackpots less than $15m DrawFY14FY15FY16FY17FY 2016FY 2017HY1HY2HY1HY2TTV ($ million)79.972.669.375.2Large Jackpots24211516This trend in steadily growing sales can also be seen when comparing half years as summarised in the following table.14 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 15 6 New Millionaires OzLotteries customers were also big winners last year with 6 new millionaires including one very happy customer who won $20 million from their Autoplay entry. In total, 209,786 customers won $76 million playing through OzLotteries. Autoplay the key to a $20 million win! 5 years ago, an OzLotteries customer set up Autoplay to keep playing his favourite numbers each week. Then he forgot about it, until one day in August 2016, he received a call from Mike Veverka, Jumbo’s CEO. Mike told him he had just won $20 million in OzLotto.. At ﬁrst the bemused customer thought it was a prank because he didn’t remember buying a ticket. However Mike reminded him that the winning game was actually an Autoplay he set up 5 years earlier. At that point the penny really did drop for one very excited OzLotteries customer! Top 10 Winners 1 $20 million from OZ Lotto, August 2016. 6 $1.0 million from Wednesday Lotto, May 2017. 2 $10.1 million from Powerball, March 2017. 7 $674,350 from Saturday Lotto, November 2016. 3 $2.6 million from Saturday Lotto, May 2017. 8 $519,011 from Saturday Lotto, March 2017. 4 $1.3 million from Saturday Lotto, July 2016. 9 $271,813 from Saturday Lotto, April 2017. 5 $1.0 million from Monday Lotto, May 2017. 10 $200,000 from Mega Jackpot Lottery, October 2016. $10,100,000.00$2,600,000.00$20,000,000.0016 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 Mobile App Improvements With customer behaviour continuing to method which was quick to implement trend towards mobile, efforts were made but slowed down the experience. to continually improve the OzLotteries App. The current version of the app enjoys a 5 star rating by iTunes, with glowing customer feedback. Customers are regularly interviewed for feedback on their purchase experience, and the feedback is used to improve the app. As a result of this process, the All products, including the new Charity purchase conversion rate has increased games, are now available for purchase 20% over the year and the iOS App Store natively in the App. In previous years, Rating has increased from 1.9 to 5 stars. some games where sold via a “frame” Social Media Improvements Jumbo is also driving social media to A majority of Jumbo’s customers enhance the overall player experience interact with social media through as well as building the OzLotteries their mobile devices with double brand. Facebook continues to be the the interactions through mobile dominant social media platform, with versus desktop. This Instagram and Twitter also making afﬁrms Jumbo’s their mark. The number of Facebook efforts on continual followers has again increased from improvements to the 114,500 to 134,000 over the past year. OzLotteries app. A fun and innovative “Lotto Face” campaign was run on Instagram inviting players to post their “I just won the lottery” face. This campaign brought in over 1,700 new followers on Instagram. Twitter is currently being used for timely jackpot promotions and lotto results and currently has over 1,500 followers. 135,659 Total Page Likes JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 17 Key Performance Indicators CPL— Cost Per Lead Average Spend per Online Customer $17.09 Up from $15.13 due to fewer jackpots. $348.40 Up from $335.27 due to the product mix between the 3 main products as well as a positive contribution from charity games. New Online Accounts 161kDown from 206K due to fewer jackpots Active Online Customers 354k Down from 376K due to fewer jackpots 18 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 Leadership Team Jumbo has a stable leadership team that has amassed unique digital experience in the world lottery industry. Mike Veverka David Barwick Chief Executive Ofﬁcer & Executive Chairman and Non-Executive Director Director (BEng (Hons)) David Barwick has over 40 years experience Mike Veverka is CEO and founder of Jumbo in the management and administration Interactive. He has a proven track record of publicly listed companies in Australia in business and computing, establishing and North America. During this period several successful startups to meet new David has held the positions of Chairman, consumer demands for online products. Managing Director or President of over 30 His entrepreneurial flair and ambition for public companies with strengths in strategic innovation were displayed at the age of planning, restructuring and ﬁnancing ﬁfteen when he created and sold his ﬁrst entities. software package to Hewlett Packard. Mike worked as a design engineer and computer programmer before founding ‘Squirrel Software Technologies’ that provided some of Australia’s ﬁrst internet services and e-commerce software. As founder and leader, Mike plays a pivotal role in the growth strategy, innovation and promotion of Jumbo. JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 19 an Associate Diploma in Banking, and successful Australian OzLotteries.com a Graduate Diploma of Advanced website to other markets and ensuring Corporate Governance. He is a Fellow capabilities for customer purchases on any of the Governance Institite of Australia device demands that websites continually and a Fellow of the Institute of Chartered evolve as new mobile and computer Secretaries and Administrators (UK). David products are released to market with brings a wealth of commercial expertise to unprecedented frequency. Jumbo Interactive as Chief Financial Ofﬁcer. Bill Lyne Non-Executive Director and Company Secretary (BCom, CA, FCIS, FGIA, FAICD, FFIN) Bill Lyne is the Principal of Australian Company Secretary Service that provides secretarial, corporate compliance and governance services to public company clients in a wide range of industries. Prior to Brad Board this, Bill was Company Secretary and CFO of First Australian Building Society, having previously spent many years in credit and lending positions in merchant banking. Bill holds a Bachelor of Commerce and is a Chartered Accountant. He is a Fellow of the Institute of Chartered Secretaries & Administrators (UK), Governance Institute of Australia, and the Australian Institute of Company Directors. He is also a fellow of and has life membership with the Financial Services Institute of Australasia. Chief Operating Ofﬁcer Having joined Jumbo in 2001 Brad has been actively involved in Jumbo’s evolution and growth into the leading digital lottery business it is today. Brad has signiﬁcant lottery and ecommerce experience and ensures that the brand, digital experiences and service offerings provided by Jumbo effectively engage and satisfy it’s 2,000,000+ customers in Australia and Internationally. In addition to responsibility for Jumbo’s marketing and product strategy he ensures various departments and subsidiaries are interacting efﬁciently with each other and in accordance with Jumbo’s overall strategic goals. Brian J. Roberts President, North America (DipEC Cert(OM)) Brian has extensive experience in lotteries and gaming, software development and production and is a recognised creative innovator. His experience in the lottery and gaming industry spans over 40 years with senior roles including Director of Creative Content Development at GTECH, COO and Senior Vice President of Marketing at On-Point Technology Systems, President of LotoMark and Vice President of Lottery Operations at International Totalizator and Lottery Systems. Brian has developed, implemented and managed gaming systems across many international jurisdictions. He holds over twenty issued and pending gaming industry USA patents. David Todd Chief Financial Ofﬁcer (MBA, GradDipACG, CAIB(SA), BCom, FGIA, FCIS) David has extensive capabilities in business administration with strengths in credit risk Xavier Bergade management and international business. His experience in ﬁnancial management spans 25 years in the banking industries of South Africa, New Zealand and Australia, and small cap and SME environments. David holds a Bachelor of Commerce, a Master of Business Administration, Chief Technology Ofﬁcer As Chief Technology Ofﬁcer, Xavier ensures that Jumbo’s technology services are continually improving and innovating while remaining secure for customer transactions. He is responsible for the adaptation of the 20 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 Financial Report JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 21 FY 2017 in Review Financial Headlines $’000 Continuing operations TTV Revenue Revenue margin NPBT NPAT Discontinued operations NPAT – overall operations EBITDA EBIT Cash at bank Net assets Net tangible assets Share price at year end (cps) Dividends paid per share (cps) Total shareholder return (%) Earnings Per Share (cps) Return of capital employed (%) – overall operations Shares on issue (million) Market capitalisation (million) EBIT margin (%) FY2017 145,322 32,429 22.3% 11,068 7,597 (1,957) 5,640 14,094 10,463 43,320 42,900 30,484 266.0 8.5 111.2% 12.6 13.1% 50.7 134.8 32.3% FY2016 153,302 34,083 22.2% 10,717 7,323 (2,653) 4,670 13,717 10,073 25,306 24,696 12,949 130.0 3.5 57.1% 10.6 18.9% 44.1 57.3 29.6% Variance % (5.2%) (4.9%) 0.1ppt 3.3% 3.7% (26.3) 20.8% 2.7% 3.9% 69.5% 73.7% 135.4% 104.6% 142.9% 54.1ppt 18.9% (5.8ppt) 15.0% 135.3% 2.7ppt Highlights The lower large jackpot activity has seen a reduction in Total FY2018 outlook — TTV based on current market conditions is higher growth 10 Transaction Value and Revenue, but a continued focus on costs to 15% vs FY2016 with ‘normalisation’ of jackpot activity for has resulted in an increase in Net Proﬁt After Tax for Continuing traditional draw lotteries and growth from the burgeoning charity operations. Discontinuing the operation in Germany contributed to lotteries the increase in Net Proﬁt After Tax of Overall operations. — Revenue margin expected to be unchanged vs FY2016 – approximately 22.0 to 23.0% — EBIT margin target 33.0% driven by continued improvement in efﬁciencies and focus on cost management 5 year Total Transaction Value and average large jackpots 200 150 100 s n o i l l i m $ 50 0 109.8 106.9 153.3 145.3 128.5 29.2 25.7 25.3 28.8 24.2 FY13 FY14 FY15 FY16 FY17 — Revenue $32.4 million – 5% decrease — Net Proﬁt After Tax – Continuing operations $7.597 million – 4%increase — Net Proﬁt After Tax – Overall operations $5.640 million – 21% increase — Dividends paid 8.50 cents (fully franked) – 143% increase — Share Price $2.66 – 105% increase — Total Shareholder Return 111.2% -54.1ppt increase 22 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 Directors’ Report The Directors of Jumbo Interactive Limited (Company), present Australian Listed Company Directorships held in the past three years: None. their report on the consolidated entity (Group), consisting of Jumbo Interactive Limited and the entities it controlled at the end of, and Interest in shares and options: 9,601,027 ordinary shares and 400,000 options over ordinary shares in Jumbo Interactive Limited. during, the ﬁnancial year ended 30 June 2017. Board of Directors The following persons were Directors of the Company during the Bill Lyne Experience: Appointed as a board member on 30 October 2009. Bill Lyne is the principal of Australian Company Secretary Service, whole of the ﬁnancial year and up to the date of this report, unless providing company secretarial, compliance and governance otherwise stated: David K Barwick Chairman, Independent Non-Executive Director Mike Veverka Managing Director and Chief Executive Ofﬁcer Bill Lyne Independent Non-Executive Director services to public companies. He is currently company secretary of four other publicly listed companies, is a former secretary and/or director of a number of other listed companies, and has a wealth of experience in corporate governance principles and practices. Bill is a fellow of Governance Institute Australia and has been a presenter at GIA courses in company secretarial practice. Qualiﬁcations: Bachelor of Commerce; Chartered Accountant. Details of the experience, qualiﬁcation and special responsibilities, Special responsibilities: Chair of the Audit and Risk Management Committee; member of the Nomination and Remuneration and other Directorships of listed companies, in respect of each of Committee; and Company Secretary. the Directors as at the date of this Directors’ Report are set out in the pages as follows: David K Barwick Experience: Appointed as a Board member on 30 August 2006 and Chairman on 7 November 2007. David Barwick is an accountant by profession with over 40 years experience in the management and administration of publicly listed companies both in Australia and North America. During this period David has held the position of Chairman, Managing Director or President of over 30 public companies covering a broad range of activities. Australian Listed Company Directorships held in the past three years: None. Interest in shares and options: None. Company Secretary Mr Bill Lyne was appointed Company Secretary 14 October 2006. Refer to the information on Directors for details of experience and qualiﬁcations. Special responsibilities: Chairman (Non-Executive); Chair of the Nomination and Remuneration Committee; and member of the Principal Activities The principal activity of the Group during the ﬁnancial year was the Audit and Risk Management Committee. retail of lottery tickets through the internet and mobile devices sold Australian Listed Company Directorships held in the past three years: Metallica Minerals Limited – Non-Executive Director and Chairman (from 11 March 2004 to 30 June 2015), both in Australia and eligible overseas jurisdictions. There were no signiﬁcant changes in the nature of the Group’s principal activities that occurred during the ﬁnancial year. Interest in shares and options: None. Mike Veverka Experience: Mike Veverka has been Chief Executive Ofﬁcer and Director of Jumbo Interactive Limited since the restructuring of the Company 8 September 1999. Mike was instrumental in the development of the e-commerce software that is the foundation to the various Jumbo operations. Mike was the original founder of subsidiary Benon Technologies Pty Ltd in 1995 when development of the software began. Mike also established a leading Internet Service Provider in Queensland which operated successfully for three years before being sold. Mike is regarded as a pioneer in the Australian internet industry with many successful internet endeavours to his name. Mike graduated with an Honours degree in engineering in 1987. Qualiﬁcations: Bachelor of Engineering (Hons). Special responsibilities: Chief Executive Ofﬁcer. Review of operations A review of the Group’s operations for the ﬁnancial year and the results of those operations, are contained in the Operating and Financial Review as set out on pages 26 to 28 of this report. Dividends A fully franked ﬁnal dividend of 5.0 cents per fully paid ordinary share for the year ended 30 June 2016 was paid on 23 September 2016, and a fully franked interim dividend of 3.5 cents per fully paid ordinary share for the year ended 30 June 2017 was paid on 24 March 2017. A fully franked special dividend of 15.0 cents per fully paid ordinary was paid on 8 August 2017. On 24 August 2017, the Directors have declared to pay a fully franked ﬁnal dividend for the ﬁnancial year ended 30 June 2017 of 5.0 cents per fully paid ordinary share (2016: 5.0 cents per fully paid ordinary share), to be paid on 24 September 2017. JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 23 Further details of dividends provided for or paid are set out in note 14 — Victoria (Fij)i - ﬁve years to 1 May 2022 and continuing thereafter to the Consolidated Financial Statements on page 63. with termination by either party giving 12 months written notice State of Affairs Changes in the state of affairs is set out on page 28 and forms part of the Directors’ Report for the ﬁnancial year ended 30 June 2017. Events since the end of the ﬁnancial year Apart from the (i) issue if 3,474.493 options to Tatts, (ii) payment of a fully franked special dividend of 15 cents per ordinary share ($7,691,140), (iii) exercise of 600,000 options ($1,050,000), and (iv) ﬁnal dividend declared, as at the date of this Directors’ Report, the directors are not aware of any matter or circumstance that has The Company’s long, strong relationship with Tatts has been strengthened with the investment by Tatts in the Company, and the Company can now conﬁdently implement its medium to long term plans to grow the business in Australia. The domestic internet lottery market is estimated to be approximately 14% of the total domestic lottery market compared to overseas lottery markets which have recorded strong growth such as the more mature markets of UK and Finland where internet market shares are estimated to have reached approximately 21% and 48% respectively. Based on this, there is still good growth potential in the domestic market. arisen that has signiﬁcantly affected, or may signiﬁcantly affect, the The Company started selling Charity lottery tickets in July 2015 operations of the Company in the ﬁnancial years subsequent to 30 and has increased the number of charities from four to ﬁve during June 2017. the year, and sales increased by 230%. This initiative is expected to Likely developments, key business strategies and future prospects Following the renewal of the lottery agreements with Tatts and the investment by Tatts in the Company in May 2017, and discontinuation of the Germany operation in March 2017, the Company is well placed to concentrate on and grow its core domestic lottery market in Australia while respecting responsible gaming commitments and the needs of all industry stakeholders, including other lottery channels. show good growth in FY2018. Operations in Germany were discontinued in March 2017 due to adverse market conditions, and the subsequent ceasing of the losses will have a positive impact on the Company’s proﬁts in future. Investment in the Company’s core intellectual property will continue for FY2018 with continuing beneﬁts expected in future years. These new products and technologies are designed to take advantage of the trend towards social media and interactive gaming which is expected to have the Company well placed in the lottery market. The following lottery agreements are held with the Tatts Group: — Victoria - ﬁve years to 1 May 2022 and continuing thereafter with Environmental regulation The Group’s operations are not regulated by any signiﬁcant termination by either party giving 12 months written notice; environmental regulation under a law of the Commonwealth or of a State or Territory. — New South Wales - ﬁve years to 1 May 2022 and continuing thereafter with termination by either party giving 12 months written notice — South Australia - ﬁve years to 1 May 2022 and continuing thereafter with termination by either party giving 12 months written notice: — Northern Territory - ﬁve years to 1 May 2022 and continuing thereafter with termination by either party giving 12 months written notice; and Directors’ meetings The number of meetings of the Board of Directors (including board committees) held during the year ended 30 June 2017 and the number of meetings attended by each Director is set out in the table below: Meetings table Board Audit and Risk Management Committee Nomination and Remuneration Committee Director Eligible to attend Attended Eligible to attend Attended Eligible to attend Attended David Barwick Mike Veverka Bill Lyne 15 15 15 15 15 15 8 - 8 8 - 8 3 - 3 3 - 3 24 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 Share options Unissued ordinary shares of the Company under options at the date Non-audit services During the ﬁnancial year, the Company’s auditor BDO Audit Pty Ltd, of this report are as follows: or their related practices (herein also referred to BDO), performed Exercise price Number other services in addition to its audit responsibilities. Date options granted Expiry date of shares under option 3 September 2013 3 September 2018 6 November 2013 6 November 2018 18 November 2015 18 November 2020 2 February 2017 2 February 2022 13 July 2017 13 July 2018 $4.00 $4.00 $1.75 $2.25 $2.37 1,400,000 400,000 1,500,000 200,000 3,474,492 6,974,492 On the advice of the Audit and Risk Management Committee, the Directors are satisﬁed that the provision of non-audit services, during the year, by the auditor (or by another person or ﬁrm on behalf of the auditor), is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. On the advice of the Audit and Risk Management Committee, the Directors are satisﬁed that the provision of non-audit services by the auditor, as set out above, did not compromise the auditor independence requirements of the Corporations Act 2001 for the The holders of these options do not have any rights under the following reasons: options to participate in any share issue of the Company or of any other entity. — all non-audit services have been reviewed by the Audit and Risk Management Committee to ensure that they do not impact the During or since the ﬁnancial year ended 30 June 2017, the following integrity and objectivity of the auditor; and ordinary shares of Jumbo Interactive Limited were issued on the — none of the non-audit services undermine the general principles exercise of options granted. relating to auditor independence as set out in APES 110 Code of Date options granted Issue price of share shares issued 18 November 2015 14 January 2016 $1.75 $1.75 100,000 500,000 Details of the amounts paid to BDO for non-audit services throughout the year are set out below: Number of Ethics for Professional Accountants. No amounts are unpaid on these shares. Consolidated 2017 $ 2016 $ During or since the ﬁnancial year ended 30 June 2017, no options Taxation services were granted by Jumbo Interactive Limited to Directors and key management personnel, including the ﬁve most highly remunerated ofﬁcers, of the Group as part of their remuneration. Tax compliance services - tax returns 40,000 53,377 Transfer pricing Other tax advice - - 22,000 3,690 On 2 February 2017, the following options were issued to a contractor Total taxation services 40,000 79,067 based in Australia as payment for services being provided (see note 24 for details): Name Roland Fuhrmann Number of options Number of ordinary granted shares under option Total other services Other services Accounting advice Accounting services 2,800 6,000 8,800 2,535 20,000 22,535 200,000 200,000 200,000 200,000 Total fees for non-audit services 48,800 103,602 Indemnifying ofﬁcers or auditor During the ﬁnancial year, the Company paid a premium in respect of a contract insuring directors, secretaries and executive ofﬁcers of the Company and its controlled entities against a liability incurred as director, secretary or executive ofﬁcer to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium. The Company has not otherwise, during or since the end of the ﬁnancial year, except to the extent permitted by law, indemniﬁed CEO and CFO declaration The Chief Executive Ofﬁcer (CEO) and Chief Financial Ofﬁcer (CFO) have provided a written declaration to the Board in accordance with section 295A of the Corporations Act 2001. With regards to the ﬁnancial records and systems of risk management and internal compliance in this written declaration, the Board received assurance from the CEO and CFO that the declaration was founded on a sound system of risk management and internal control, and that the system was operating effectively in all material respects in relation to the reporting of ﬁnancial risks. or agreed to indemnify an ofﬁcer of the Company or any of its controlled entities against a liability incurred as such an ofﬁcer. Proceedings against the Company No person has applied to the Court under section 237 of No indemnity has been provided to, or insurance paid on behalf of, the auditor of the Group. the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party, for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings.No proceedings have been brought or intervened in on behalf of the Company with leave of the Court under section 237 of the Corporations Act 2001.Remuneration ReportThe Remuneration Report is set out on pages 29 to 34, and forms part of the Directors’ Report for the ﬁnancial year ended 30 June 2017.Rounding of amountsThe company satisﬁes the requirements of ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 issued by the Australian Securities and Investments Commission in relation to rounding of amounts in the directors’ report and the ﬁnancial statements to the nearest thousand dollars. Amounts have been rounded off in the directors’ report and ﬁnancial statements in accordance with that Legislative Instrument.Auditor’s Independence DeclarationA copy of the Auditor’s Independence Declaration, as required under section 307C of the Corporations Act 2001, is set out on page 35.This Directors’ Report is made in accordance with a resolution of the Directors of the Company. David K Barwick Chairman Brisbane 24 August 2017JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 2526 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 Operating and Financial Review Consolidated results of continuing operations The Company reports revenue on a net revenue inflow basis where it considers that it acts more as an Agent than as a Principal such as with the sale of lottery tickets. The gross amount received for the sale of goods and rendering of services is advised as Total Transaction Value (“TTV”) for information purposes. Refer to note 2 for details. Continuing operations TTV Revenue Cost of sales Gross proﬁt Other income Expenses NPBT Income tax Expense NPAT continuing operations Discontinued operations NPAT overall operations EBITDA EBIT FY2017 145,322 32,429 (2,465) 29,964 1,064 (19,960) 11,068 (3,471) 7,597 (1,957) 5,640 14,094 10,463 FY2016 153,302 34,083 (2,803) 31,280 1,197 (21,760) 10,717 (3,394) 7,323 (2,653) 4,670 13,717 10,073 Variance % (5.2%) (4.9%) (12.1%) (4.2%) (11.1%) (8.3%) 3.3% 2.3% 3.7% (26.3%) 20.8% 2.7% 3.9% Although there was a decrease in TTV and Revenue due mainly to through its marketing activities and a lower proportion through the lower level of large jackpot activity, the Company was successful afﬁliates - the margin decreased by 0.1ppt to 1.7% from 1.8%. in increasing Proﬁt over the same period last year. Large jackpot activity is an important driver of sales and can randomly fluctuate over time. During the ﬁnancial year, the number of large jackpots was 31 (2016:45) and aggregate value $750 million (2016: $1,295 million). This is 31% lower in number and 42% lower in aggregate value compared to the previous period. With ongoing losses in Germany due to unfavourable market conditions, the business was scaled down in November 2016 and subsequently discontinued in March 2017 (see note 6 for details). The overall increase in net proﬁt after tax resulted from (i) a focus on the management of costs and (ii) discontinuing the operation in Germany. The Company continues to invest in the three main pillars that support the ongoing growth of the Company with $4,448,000 (2016: $4,795,000) on its proprietary software platform (intangible assets), $3,566,000 (2016: $4,486,000) in marketing activities primarily to acquire new and retain existing customers, and $7,178,000 (2016: $6,972,000) on employees who provide the software development and marketing skills, customer support services, and management. Comparative analysis Compared to FY2016: TTV decreased $7,980,000 or 5.2%, principally due to: — $7,980,000 or 5.2% decrease in Australia Lotteries mainly as a result of decreased large jackpot activity. Revenue decreased $1,654,000 or 4.9% due mainly to: — $1,653,000 or 4.9% decrease in Australia Lotteries as a result of the decreased TTV. The 0.30ppt lower decrease compare to the TTV decrease is due to an edge higher margin of 22.3% (2016: 22.2%) which is affected by product mix. Cost of sales decreased by $338,000 or 12.1% mainly due to — a higher proportion of the TTV for Australia Lotteries being Other income, being mainly interest on cash at bank, decreased by $133,000 or 11.1% largely as a result of: — $38,000 or 6.0% decrease in interest on cash for Australia Lotteries through lower average interest rates; and — $95,000 or 48.5% decrease in other income mainly from a decrease in expense recoveries. NPBT of continuing operations increased $351,000 or 3.3% to $11,068,000, principally due to: — $27,000 or 0.2% decrease in Australia Lotteries proﬁts due to decreased TTV and Revenue and containing costs which decreased by 7.3%; — an increase of $14,000 or 3.6% in All Other Segment proﬁts from decreased expenses; and — $364,000 or 17.8% decrease in Corporate expenses mainly as a result of no impairment to investments or share of associate company losses. Australia Lotteries NPBT decreased 0.2% or $27,000 due to: — decreased TTV by 5.2% or $7,980,000 and Revenue and other income by 5.1% or $1,745,000 resulting mainly from decreased large jackpot activity; — reduced cost of sales by 12.1% or $338,000; and — reduced costs by 7.3% or $1,380,000 largely due to lower marketing expenses $887,000 and merchant fees $246,000 resulting from lower large jackpot activity. With no meaningful opportunities foreseeable in Mexico, activity was minimal during the ﬁnancial year and the NLBT of $32,000 for FY2017 (2016: NLBT $45,000) is included in the Australia Lotteries segment. JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 27 All Other Segments NPBT increased 3.6% or $14,000 due to: spent by active online customers divided by the number of active — reduced costs by 3.3% or $15,000 online customers in a given period. The number of large jackpots is a signiﬁcant driver of sales. The The following table summarizes the Marketing KPI’s: sales trend over the last three ﬁnancial year periods in the context of such jackpots in Australia is summarised in the following table: www.ozlotteries.com and mobile apps FY 2017 FY 2016 Number of new online accounts 160,698 206,858 Large jackpot activity FY 2017 FY 2016 FY 2015 CPL $17.09 $15.13 TTV continuing operations $145.3 m $153.3 m $128.5 m Number of active online customers 354,113 375,988 Reported Revenue continuing operations $32.4 m $34.1 m $29.1 m Average spend per active online customer $348.40 $335.27 OzLotto/Powerball Number of jackpots1 31 45 34 active online customers are due mainly to the decrease in large The 22.3% decrease in new online accounts and 5.8% decrease in Average Div 1 jackpot1 $24.2 m $28.8 m $25.3 m jackpot activity (31% decrease in number and 42% decrease in Peak Div 1 jackpot2 $55 m $70 m $70 m Aggregate Div 1 jackpots2 $750 m $1.295 m $860 m 1Ozlotto/Powerball Division 1 jackpots of $15 million or more 2during the ﬁnancial year period The lower level of large jackpot activity in the current ﬁnancial year has led to lower TTV and revenue. The focus on cost management has resulted in a decrease in expenses of 8.3%. The combination aggregate value). The 3.9% increase in average spend is largely due to an increase in charity lottery sales and marketing initiatives. The 13.0% increase in CPL is mostly due to trying other marketing channels to acquire customers. With no meaningful opportunities in the foreseeable future in Mexico, activity is minimal and this segment ceased being reportable during the 2016 ﬁnancial year. of lower TTV and revenue and cost reduction has resulted in an The net loss before tax for Mexico was $32,000 (2016: loss $45,000) increase in proﬁts. and is included in the Australia segment. (b) All Other Segments This segment consists of the sale of non-lottery products and services. TTV and Revenue and other income decreased to $843,000 (2016: $844,000) and net proﬁt before tax increased to $407,000 (2016: $392,000), due to lower expenses. (c) Corporate The net loss reduced 17.8% or $364,000 to NLBT $1,679,000 (2016: NLBT $2,043,000) mainly due to no impairments in investments or share of associate company losses. Segment review (a) Online Lottery Segment With the operation in Germany discontinued March 2017, this segment now consist of Australia and Mexico, and Mexico’s results are included in those of Australia due to the minimal activity and no meaningful opportunities in the foreseeable future. Australia Improvements continue to be made to online marketing and player experience, but the lower level of large jackpot activity, which was 31% lower in number and 42% lower in aggregate value compared to FY2016, contributed signiﬁcantly to a 5.0% decrease in revenue to $31,586,000 (2016: $33,239,000). Other income reduced by $92,000 or 9.7%. Net proﬁt before tax decreased by 0.2% to $12,340,000 (2016: $12,367,000) due to the lower jackpot activity notwithstanding a reduction in expenses of 7.3%. TTV for the ﬁnancial year decreased by 5.2% to $144,479,000 (2016: $152,459,000), Jumbo invests extensively in online marketing to grow and activate the customer database whom transact via its website (www. ozlotteries.com) and associated mobile apps (iOS & Android). The following key performance indicators (KPIs) are used to track the effectiveness of these campaigns: 1. CPL: Cost per Lead (new online accounts) deﬁned as total cost to acquire these new accounts divided by the number of new accounts in a given period. New accounts potentially become active customers after the account has been established. 2. Number of Active Online Customers deﬁned as customers who have spent money on tickets in a given period. 3. Average spend per active online customer deﬁned as the total 28 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 (d) Summary of results The annual comparison of results of the Company for the past ﬁve years is summarised below: Revenue/proﬁts ($’000) TTV – continuing operations Revenue – continuing operations NPAT – overall operations NPAT – continuing operations NPAT – discontinued operations EBITDA – continuing operations EBIT – continuing operations Assets Cash at bank1 ($’000) Net assets ($’000) Net tangible assets ($’000) Return on capital employed (%) – overall operations Return on capital employed (%) – continuing operations Return on capital employed (%) – discontinued opera- tions FY2017 145,322 32,429 5,640 7,597 (1,957) 14,094 10,463 FY2017 43,320 42,900 30,484 13.1 17.7 (4.6) FY2016 153,302 34,083 4,670 7,323 (2,653) 13,717 10,073 FY2016 25,306 24,696 12,949 18.9 29.6 (10.7) FY2015 128,464 29,076 663 4,274 (3,611) 8,314 5,433 FY2015 23,778 21,681 11,639 3.1 19.7 (16.6) FY2014 106,872 24,792 3,251 4,366 (1,115) 7,720 5,498 FY2014 25,366 22,107 14,107 14.7 19.7 (5.0) FY2013 109,766 25,871 3,458 3,464 (6) 7,367 5,085 FY2013 24,461 22,341 15,641 15.2 15.5 (0.3) 1includes cash held under term deposit and customer account balances payable (refer note 7: Cash and Cash Equivalents and Note 11: Trade and Other Payables for details) Share price Earnings per share (cps) Dividends paid per share (cps) Share price at ﬁnancial year end (cps) Total shareholder return (%) Shares on issue (million) Market capitalisation ($’million) FY2017 FY2016 FY2015 FY2014 FY2013 12.6 8.5 266.0 111.2 50.7 134.8 10.6 3.5 130.0 57.1 44.1 57.3 1.5 3.0 85.0 (32.3) 44.2 37.6 7.4 3.0 130.0 (11.3) 43.9 57.1 7.9 3.5 150.0 46.2 43.6 65.3 Financial position The net assets of the Group have increased by $18,204,000 from 30 June 2016 to $42,900,000. The Group’s working capital, being current assets less current liabilities, has increased from $12,719,000 in 2016 to $30,444,000 in 2017 mainly as a result of increased cash and cash equivalents. (a) Increase in contributed equity of $15,665,000 resulting from: – Issue of 6,609,686 shares as a result of an issue to Tatts at $2.37 per share (see note 15 for details) $15,665,000 of this increase came from share issues. (b) Increase in cash of $18,014,000 resulting from: Non-current assets increased by $527,000 to $12,823,000 due mainly to the investment in the new software code of www. – Cash raised from the issue of contributed equity in (a) ozlotteries.com. above – Other activities (see Cash Flow Statement for details) The Directors believe the Group is in a sound ﬁnancial position to expand and grow its current operations. Signiﬁcant changes in State of Affairs Signiﬁcant changes in the state of affairs of the Group for the ﬁnancial year were as follows: (c) Increase in non-current assets of $527,000 resulting from: – investment in website development costs net of amor- tisation (see note 10 for details) – Changes in other non-current assets (see notes 4, 9, 10 and 22 for details) $’000 15,665 15,665 $’000 15,665 2,349 18,014 $’000 891 (364) 527 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 29 Remuneration Report – audited policy is designed to attract the highest calibre of KMP and reward them for performance that results in long term growth in shareholder wealth. Page Refer below for further details of performance based remuneration. Contents Section Contents 1 2 3 4 5 6 7 8 9 10 11 12 Remuneration Report Introduction Remuneration Framework Directors and Executives Cash bonuses Options and rights Equity instruments issued to KMP Options granted Value of options Equity instruments held by KMP Loans to KMP Other transactions and balances Employment contracts 29 29 30 32 32 32 32 32 33 33 34 34 1. Remuneration Report Introduction This report details the nature and amount of remuneration for each Key Management Person (KMP), including each director of Jumbo Interactive Limited. The Remuneration Report for the year ended 30 June 2017 is set out per the above Contents. The information in the Report has been audited. 2. Policy Framework The Remuneration Policy of Jumbo has been designed to align director and KMP objectives with shareholder and business objectives by providing a remuneration component and offering speciﬁc incentives based on key performance areas affecting the Group’s ﬁnancial results. The Board believes the Remuneration Policy to be appropriate and effective in its ability to attract and retain the best directors and KMP to run and manage the Group, and drives and reflects the creation of shareholder value. The Board’s policy for determining the nature and amount of remuneration for Board members and KMP of the Group is as follows: KMP are also entitled to participate in the employee share option arrangements. The directors and KMP receive a superannuation guarantee contribution required by the government, which is currently 9.50% and do not receive any other retirement beneﬁts. Some individuals, however, may choose to sacriﬁce part of their salary to increase payments towards superannuation. All remuneration paid to directors and KMP is valued at the cost to the Company and expensed. Options are valued using the Black- Scholes Binomial and Monte Carlo Simulation methodologies. The mix of total potential remuneration for FY2017 for KMP is as follows: Fixed remuneration - 100% Short term incentive cash bonuses - 60% to 66.66% of ﬁxed remuneration. Fixed compensation Fixed compensation consists of a base salary as well as employer contributions to superannuation funds. Compensation levels are reviewed annually by the Board through a process that considers individual and overall performance of the Group, and with reference to other KMP of comparable companies. If considered necessary, external consultants provide analysis and advice to ensure the directors’ and KMP compensation is competitive in the market place. Refer to Note 8: Executive Service Agreements of this Report for details of KMP ﬁxed remuneration. Performance linked compensation Performance linked compensation includes short term incentives only and is designed to reward KMP for superior performance. The short term incentive (STI) is an “at risk” bonus provided in the form of cash. The Group does not have long term incentives (LTI) such as the issue of ordinary shares or the grant of options over ordinary shares as a part of performance linked compensation due to the relatively small market capitalisation of the Company, the concentrated — The Remuneration Policy, setting the terms and conditions for shareholding of the Company which could become further the directors and KMP, was developed by the Nomination and concentrated under such a scheme, and the desire of the Board to Remuneration Committee and approved by the Board. limit shareholding dilution to as low a level as possible. The Board — All KMP receive a base salary (which is based on factors such as did not exercise any discretion on the payment of bonuses. individual performance skills, level of responsibilities, experience and length of service), superannuation, options (by invitation) and performance incentives. Non-Executive Directors The Board policy is to remunerate non-executive Directors at — Performance incentives are generally only paid once market rates for comparable companies for time, commitment predetermined key performance measures have been met. and responsibilities. The Board determines payments to the non- — The Board reviews KMP packages annually by reference to the executive Directors and reviews their remuneration annually based Group’s performance, executive performance and comparable on market practice, duties and accountability. Independent external information from industry sectors and other listed companies in advice is sought when required. The maximum aggregate amount similar industries. of fees that can be paid to non-executive directors is subject to approval by shareholders at the Annual General Meeting. The The performance of KMP is measured against criteria agreed total compensation for all non-executive Directors, last voted upon annually with each KMP and is based predominantly on the Group’s by shareholders at the 2009 AGM, is not to exceed $250,000 per proﬁts and shareholder value. All bonuses and incentives must be linked to predetermined performance criteria. Any changes must annum and is set with reference to other non-executive Directors of comparable companies. Fees for non-executive Directors are not be justiﬁed by reference to measurable performance criteria. The linked to the performance of the Group. 30 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 Fees are paid as follows and comprise cash and statutory In determining whether or not a ﬁnancial KPI has been achieved, the superannuation: Company bases the assessment on audited ﬁgures. Chairman of the Board Non-Executive Directors Membership of Audit and Risk Manage- ment Committee and Nomination and Remuneration Committee Chairman of Audit and Risk Management Committee and Nomination and Remuner- ation Committee $84,315 $60,225 Performance conditions linked to remuneration The Group seeks to emphasise reward incentives for results and continued commitment to the Group through the provision of various No additional fees “at risk” cash bonus reward schemes. No additional fees Short term incentive bonus Incentive payments are based on the achievement of ﬁnancial targets of proﬁt, return on equity and total shareholder return and non-ﬁnancial targets of strategic beneﬁt such as signing of lottery Performance Based Remuneration As part of the KMP remuneration package there is a performance agreements both domestically and internationally. Payments of incentives for the 2017 ﬁnancial year result were based on the based component, consisting of key performance indicators (KPI). Group’s overall ﬁnancial performance (with some KPIs being The intention of this program is to facilitate goal congruence achieved). between executives with that of the business and shareholders. These KPI are set annually, with a certain level of consultation with KMP to ensure buy-in. The KPI target areas the Board believes hold greater potential for group expansion and proﬁt, covering both ﬁnancial and non-ﬁnancial as well as short and long-term Long term incentive bonus Options are issued to KMP as part of their remuneration at the discretion of the Board. These options are not issued based upon performance criteria, but are issued to increase goal congruence goals. The level set for each KPI is based on a combination of an between KMP, directors and shareholders. improvement on the previous year results, increased shareholder value and market sector standards (Consumer Discretionary Sector – ASX code: XDJ). Performance in relation to the KPI is assessed annually by the Board, with bonuses being awarded depending on the level of achievement compared to the KPI target. Following the assessment, the KPIs are reviewed by the Board in light of the Company Performance, Shareholder Wealth, and Directors’ and KMP Remuneration The following table shows the total transaction value and proﬁt/ (loss) for the last ﬁve years for the listed entity, as well as the share price at the end of the respective ﬁnancial years. Analysis of the desired and actual outcomes, and their efﬁcacy is assessed in ﬁgures show: relation to the Group’s goals and shareholder wealth before the KPI are set for the following year. $’000 TTV continuing operations Net proﬁt after tax – continuing operations Net proﬁt after tax – overall operations Share price at year end (cps) Dividends paid per share (cps) Total shareholder return (%) Earnings per share (cps) Return of capital employed (%) Market capitalisation FY 2017 FY 2016 FY 2015 FY 2014 FY 2013 $145,322 $153,302 $128,404 $106,872 $109,766 $7,597 $5,640 266.0 8.5 111.2% 12.6 13.1% $7,323 $4,670 130.0 3.5 57.1% 10.6 18.9% $5,433 $663 85.0 3.0 (32.3%) 1.5 3.1% $5,498 $3,250 130.0 3.0 (11.3%) 7.4 14.7% $5,085 $3,458 150.0 3.5 46.2% 7.9 15.2% $134,793 $57,284 $37,572 $57,073 $65,329 3. Directors and Executives Directors and executives The KMP of the Group (being those whose remuneration must be Name Position held disclosed in the Report) includes the Non-Executive Directors and those Executives who have the authority and responsibility for planning, directly and controlling the activities of Jumbo. Non-Executive Directors David K Barwick The Non-Executive Directors and Executives that were the KMP of the Group during the ﬁnancial year are identiﬁed as follows: Bill Lyne Executive KMP Mike Veverka David Todd Chairman, Independent Non-Executive Director Independent Non-Executive Director Director and Chief Executive Ofﬁcer Chief Financial Ofﬁcer Xavier Bergade Chief Technical Ofﬁcer Brad Board Kate Waters Chief Operating Ofﬁcer Head of HR and Lottery Opera- tions-Australia (resigned 1 August 2016) JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 31 Details of Remuneration Details of compensation of KMP of Jumbo are set out below: 2017 Short term employee beneﬁts beneﬁts Long term beneﬁts payments Post employment Share based Cash salary, fees and an- Non-mone- Superannu- Long service Termination Proportion of remuner- ation that is performance nual leave Cash bonus tary beneﬁts ation leave beneﬁts Options1 Total based Directors David Barwick Mike Veverka Bill Lyne Bill Lyne – as Company Secretary Other KMP David Todd Xavier Bergade Brad Board Kate Waters2 $ 77,000 $ - 488,069 173,580 55,000 24,100 237,507 237,507 237,507 21,382 - - 86,790 86,790 73,920 - Total KMP remuneration 1,378,072 421,080 $ $ 7,315 25,000 5,225 - 29,949 29,949 28,726 9,706 $ - 6,835 - - 3,795 3,795 3,795 $ - - - - - - - $ - 44,277 - - $ 84,315 737,761 60,225 24,100 20,421 20,421 20,421 378,462 378,462 364,369 233 174,538 756 206,615 % - 23.5 - - 22.9 22.9 20.3 - 135,870 18,453 174,538 106,296 2,234,309 1 includes share based payments over the remaining term on those options exercised, if any, during the ﬁnancial year 2 Kate Waters ceased being a member of KMP 1 August 2016 2016 Short term employee beneﬁts beneﬁts Long term beneﬁts payments Post employment Share based Cash salary, fees and an- Non-mone- Superannu- Long service Termination Proportion of remuner- ation that is performance nual leave Cash bonus tary beneﬁts ation leave beneﬁts Options1 Total based Directors David Barwick Mike Veverka Bill Lyne Bill Lyne – as Company Secretary Other KMP David Todd Xavier Bergade Brad Board Kate Waters2 $ 77,000 $ - 399,952 99,660 54,583 26,921 226,753 241,463 224,185 163,041 - - 49,830 49,830 54,780 - Total KMP remuneration 1,413,898 254,100 $ $ $ - 16,070 - - 6,226 1,938 4,630 6,290 7,315 32,422 5,185 - 25,301 25,301 27,628 15,675 138,827 35,154 $ - - - - - - - - - $ - $ 84,315 % - 39,982 588,086 16.9 - - 59,768 26,921 18,236 18,236 18,236 326,346 336,768 329,459 8,813 193,819 103,503 1,945,482 - - 15.3 14.8 16.6 - 1 includes share based payments over the remaining term on those options exercised, if any, during the ﬁnancial year 2 Kate Waters ceased being a member of KMP 1 August 2016 - - - - - - - - - - - - - - - - - - 32 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 4. Cash bonuses No cash bonuses were paid at the discretion of the Nomination and Performance measures apply to all participants with slightly difference individual weightings Remuneration Committee. Key management personnel are entitled to a short-term cash forfeited or available for vesting in later years is outlined below: Details of these short-term incentives recognised as remuneration, incentive as ‘at risk’ remuneration based on performance criteria described in section (a) to this Remuneration Report. These were paid out on 24 August 2017. Name Maximum Potential Awarded and included in remuneration Forfeited in year Financial Non-ﬁnancial Total Financial Non-ﬁnancial1 Total Financial Non-ﬁnancial $ $ $ Mike Veverka 158,400 105,600 264,000 David Todd Xavier Bergade Brad Board 79,200 79,200 79,200 52,800 52,800 52,800 132,000 132,000 132,000 $ 112,860 56,430 56,430 43,560 $ 60,720 30,360 30,360 30,360 $ 173,580 86,790 86,790 73,920 $ 45,540 22,770 22,770 35,640 $ 44,880 22,440 22,440 22,440 Total $ 90,420 45,210 45,210 58,080 1includes available for vesting in later years Mike Veverka $2,640 David Todd Xavier Bergade Brad Board $1,320 $1,320 $1,320 5. Options and rights granted as remuneration Options are issued to key management personnel as part of their remuneration at the discretion of the Board. The options are not 6. Equity instruments issued on exercise of remuneration options No equity instruments were issued during the period to key necessarily issued based upon performance criteria, but are management personnel as a result of options exercised that had issued to selected executives of the Company and its subsidiaries previously been granted as compensation. to increase goal congruence between executives, directors and shareholders. Options will vest in key management personnel when the share price equals the exercise price, as measured by the ﬁve trading day moving volume weighted average price, and on condition that they are currently employed by the Jumbo Interactive Limited Group at the time of vesting. If the key management person leaves before their options vest, then the options will lapse immediately. In the event of retirement or retrenchment, the options will lapse one month after the event and if deceased, the options will lapse three months after the event. No options and rights were granted to key management personnel as compensation during the reporting period 7. Options granted as part of remuneration that lapsed during the period No options previously granted to key management personnel as part of remuneration lapsed during the period. 8. Value of options to key management personnel There were no options granted, exercised and lapsed during the year to key management personnel. JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 33 9. Equity instruments held by key management personnel Options and rights holdings On exercise, each option and right will result in the issue of one ordinary share in Jumbo Interactive Limited. Key management personnel include close family members and entities over which the key management person or their close family members have direct or indirect control, joint control or signiﬁcant influence. Details of options and rights over ordinary shares of Jumbo Interactive Limited, held indirectly or beneﬁcially by key management personnel are as follows: Balance at 1 Granted as Exercised Other Balance Vested at 30 Total vested Total vested July 2016 remunera- during the changes at 30 June June 2017 and exercis- and unexer- Mike Veverka David Todd 900,000 750,000 Xavier Bergade 750,000 Brad Board 750,000 3,150,000 tion during the year - - - - - year during the 2017 able at 30 cisable at 30 June 2017 June 2017 - - - - - year - - - - - 900,000 500,000 500,000 750,000 750,000 750,000 400,000 400,000 400,000 400,000 400,000 400,000 3,150,000 1,700,000 1,700,000 - - - - - Shareholdings Details of ordinary shares in Jumbo Interactive Limited held directly, indirectly or beneﬁcially by key management personnel and their related parties are as follows: FY2017 Mike Veverka David Todd Xavier Bergade Granted as Issued on exercise Balance at 1 July 2016 remuneration during the year of options during the year Other changes during the year Balance at 30 June 2017 9,101,027 20,000 150,000 9,271,027 - - - - - - - - - - - - 9,101,027 20,000 150,000 9,271,027 10. Loans to key management personnel Aggregate loans to key management persons and their related parties are as follows: Balance at 1 July Loans advanced Interest charged Interest received Balance at 30 Number in group 2016 $ 100,000 $ - $ 7,236 $ (7,236) $ 100,000 1 June 2017 at end of year Total On 7 March 2016, Jumbo Interactive Ltd made a loan to KMP Brad No write-downs have been made during the ﬁnancial year against Board for an amount of $100,000. The loan bears interest at the this loan and no allowances are considered necessary at the end of Commonwealth Bank of Australia’s Home Loan Standard Variable the reporting period. Rate, 5.22% p.a. as at the end of the reporting period, plus a margin of 2.00% p.a., payable monthly in arrears. The capital balance is repayable by 7 March 2018. The loan outstanding at the end of the current year is unsecured (with insurance cover over the life of the borrower) and repayable by 7 March 2018. Key management personnel include close family members and entities over which the key management person or their close family members have direct or indirect control, joint control or signiﬁcant influence. 34 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 11. Other transactions and balances Other related party transactions Consolidated Group 2017 $ 2016 $ Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated. i. Elegant Properties Pty Ltd and Rosch Realty Pty Ltd are solely owned by Mr Mike Rosch, the father of Mr Mike Veverka, the CEO and executive director of the Company. Elegant Properties Pty Ltd rented an ofﬁce from the Group and provided services during the ﬁnancial year and Rosch Realty Pty Ltd provided an agent service during the previous ﬁnancial year. Ofﬁce rent received Services paid Amounts owing to Group at year end 7,211 - 1,573 6,600 14,097 1,210 ii. Mrs Julie Rosch, the mother of Mr Mike Veverka, the CEO and Executive Director of the Company, is engaged as a full time employee within the Group. Salary and superannuation 82,441 82,125 12. Employment contracts of directors and KMP The employment conditions of non-executive directors are formalised by letters of appointment and KMP are formalised in contracts of employment. The employment contracts stipulate a range of terms and KMP Mike Veverka David Todd Duration of service agreement Ongoing Ongoing Fixed remuneration at end of FY20171 Notice period2 $396,000 12 months $220,000 6 months conditions. These contracts do not ﬁx the amount of remuneration Xavier Bergade Ongoing $220,000 6 months increases from year to year. Remuneration levels are reviewed generally each year by the Nomination and Remuneration Committee to align with job responsibilities and market salary expectations. The Company may terminate an employment contract without cause by providing generally four weeks written Brad Board Ongoing $220,000 6 months 1ﬁxed remuneration excludes a superannuation component, currently 9.5% 2any termination payment (notice and severance) will be subject to compliance with all relevant legislation and will not exceed 12 months notice or making payment in lieu of notice, based on the individual’s END OF AUDITED REMUNERATION REPORT annual salary component. The notice period for the Chief Executive Ofﬁcer is ﬁfty two (52) weeks. A termination payment may or may not be applicable dependent on the particular circumstances. Termination payments are generally not payable on resignation or dismissal for serious misconduct. In the instance of serious misconduct the Company can terminate employment at any time. Any options not exercised before or on the date of termination will lapse. The policy of the Company is that service contracts are generally unlimited in term. Unless otherwise stated, service agreements do not provide for pre-determined compensation values or the manner of payment. Compensation is determined in accordance with the general remuneration policy outlined above. The manner of payment is determined on a case by case basis. JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 40 35 Tel: +61 7 3237 5999 Fax: +61 7 3221 9227 www.bdo.com.au Level 10, 12 Creek St Brisbane QLD 4000 GPO Box 457 Brisbane QLD 4001 Australia DECLARATION OF INDEPENDENCE BY K L COLYER TO THE DIRECTORS OF JUMBO INTERACTIVE LIMITED As lead auditor of Jumbo Interactive Limited for the year ended 30 June 2017, I declare that, to the best of my knowledge and belief, there have been: 1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and 2. No contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of Jumbo Interactive Limited and the entities it controlled during the period. K L Colyer Director BDO Audit Pty Ltd Brisbane, 24 August 2017 BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation, other than for the acts or omissions of financial services licensees. 36 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 Corporate Governance Statement Group Introduction This statement summarises the corporate governance practices that have generally applied in Jumbo Interactive Limited (the Company) throughout the reporting period except where otherwise stated. It is structured along the same lines as the ASX Corporate Governance Council’s Principles and Recommendations, with sections dealing in turn with each of the Council’s corporate governance Principles and addressing the Council’s Recommendations. This statement and the charters, codes and policies referred to herein are posted on the Company’s website www.jumbointeractive.com and shareholders and other interested readers are welcome to refer to them. The Board will keep its corporate governance practices under review. 1. Lay solid foundations for management and oversight The Council’s ﬁrst Principle states that companies should “establish and disclose the respective roles and responsibilities of its board and management and how their performance is monitored and evaluated.” Jumbo has adopted a formal Board Charter that sets out the functions reserved to the Board and those delegated to the Chief Executive Ofﬁcer. This enables the Board to provide strategic guidance for the Company and effective oversight of management. Jumbo ensures that appropriate checks are undertaken before it appoints a person, or puts forward to shareholders a new candidate for election, as a director. Information about a candidate standing for election or re-election as a director is provided to shareholders to enable them to make an informed decision on whether or not to elect or re-elect the candidate. Diversity Objective 2017 Result Outcome No. % Women on the board Women in senior executive positions To have at least one woman on the Board Maintain at least the current number (one) of women Women employees in the Group Achieve the percentage of woman in excess of 40% Total employees in the Group - 1 47 117 - Not achieved 20.0 Achieved 40.2 Achieved 100.0 The Board has now developed the following objectives regarding gender diversity and aims to achieve these objectives over the next ﬁve years to 2017 as director and senior positions become vacant and appropriately qualiﬁed candidates become available: Group Diversity 2017 Actual 2022 Objective Women on the board Women in senior executive positions Women employees in the Group Total employees in the Group No. - 1 47 117 % - 20.0 40.2 100.0 To have at least one woman on the Board Maintain at least the current number (one) of women Achieve the percentage of woman in excess of 45% Jumbo provides new Directors with a letter on appointment which details the terms and conditions of their appointment, provides clear Senior executive positions are deﬁned as those reporting directly to guidance on what input is required by them, and includes materials the CEO (i.e. CEO – 1). to assist with induction into the Company. The Company has a similar approach for all senior executives whereby they are provided with a formal letter of appointment setting out their terms of ofﬁce, duties, rights and responsibilities as well as a detailed job description. The Board has delegated responsibilities and authorities to the CEO and other executives to enable management to conduct the Company’s day to day activities. Matters which exceed deﬁned authority limits require Board approval. The Company Secretary is accountable directly to the Board, through the Chair, on all matters to do with the proper functioning of the Board. The Company realises the beneﬁts that can arise to the organisation from diversity in the workplace covering gender, age, ethnicity and cultural background and in various other areas. So, the Board has established a Diversity Policy which details the Company’s approach to promoting a corporate culture that embraces diversity when selecting and appointing its employees and Directors. A Workplace Gender Equality Report 2015-16 has been lodged with the Workplace Gender Equality Agency and is accessible on the Company’s website. The Board is also responsible for the performance of the Company’s executives, which is reviewed against appropriate measures and the performance of the Company as a whole, and through an annual appraisal process. Performance of the Board, its committees and individual directors is on an annual self-assessment and peer-assessment basis which is reviewed against appropriate measures and performance of the Company as a whole. The Board, its committees, individual directors and its senior executives’ performance evaluations have been carried out during the relevant reporting period in accordance with the abovementioned processes. 2. Structure the Board to add value In its second Principle the Council states that companies should “have a board of an appropriate size, composition, skills and This Diversity Policy outlines requirements for the Board to develop commitment to enable it to discharge its duties effectively.” Jumbo’s measurable objectives for achieving diversity, and annually assess Board is so structured, and its Directors effectively discharge their both the objectives and the progress in achieving these objectives. responsibilities and duties for the beneﬁt of shareholders. Objectives were developed in 2012 for achievement over ﬁve years to 2017, and the outome is as follows: JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 37 The Board presently comprises only two Non-Executive Directors process has yet been established for individual Directors given the (David Barwick, Chairman, having served seven years since being small size of the Board. Details of Committee meeting attendances are set out in the Directors’ Report section of the Company’s annual report. Minutes of all meetings are provided to the Board and its Chair reports to the Board after each Committee meeting. The Company also complies with the Recommendations for Directors in relation to independent professional advice, information access and contact with the Company Secretary. The Directors may seek external professional advice at the expense of the Company on matters relating to their role as Directors of Jumbo. However, they must ﬁrst request approval from the Chairman, which must not be unreasonably withheld. If withheld then it becomes a matter for the whole Board. appointed 1 November 2007 and Bill Lyne, also the Company Secretary, having served ﬁve years since being appointed 30 October 2009) and the Chief Executive Ofﬁcer (Mike Veverka). Fundamental requirements for Jumbo Directors are a deep understanding of business management and ﬁnancial markets and such experience, complemented where possible with industry knowledge, are desirable attributes for Board membership. All Board members meet the fundamental requirements, and bring a diverse range of skills and backgrounds. Additionally, Mr Veverka has had a very long involvement in key sections of the Company and brings considerable relevant expertise and knowledge to the Board. A matrix of skills and diversity that the Board currently has or is looking to achieve in its membership is detailed in Table 1 below. The rating scale used for level of importance and recruitment priority is High (3), Medium (2) and Low (1). The Board formally meets monthly throughout the year, and informally at least every six to eight weeks to address issues that may arise outside of the monthly meetings. The qualiﬁcations, experience and relevant expertise of each Board member and their terms in ofﬁce are set out in the Directors’ Report section of the Company’s Annual Report. All Directors, apart from the CEO, are subject to re-election by rotation at least every three years at the Company’s annual general meeting. The Board’s view is that an independent Director is a non-executive Director who does not have a relationship affecting independence on the basis set out in the Council’s guidelines and meets materiality thresholds agreed by the Board as equating to payments to them or related parties of 5% of the Company’s annual revenue. The Board considers that David Barwick, notwithstanding that he has now served in the position of director for 10 years, and Bill Lyne all meet this criterion. On the other hand, Mike Veverka is considered to not be independent because he is a substantial shareholder in Jumbo (i.e. holds more than 5% as deﬁned in Section 9 of the Corporations Act) and is an executive ofﬁcer of the Company. Consequently, the current structure meets the Council’s recommendation that the majority of the Board should be independent, and the Board also considers the current composition is appropriate given the Company’s and the Directors’ backgrounds and the current and foreseeable structure and size of the Company. The Jumbo Board has established a Nomination and Remuneration Committee which operates under a Board approved Nomination and Remuneration Committee Charter. In accordance with the Council’s Recommendations the Nomination and Remuneration Committee Charter requires it to have three Non-Executive Directors, with a majority being independent.. However, at the present time it has only two members, being the Non-Executive Directors, David Barwick (as the Chair) and Bill Lyne, both of whom have relevant experience and appropriate technical expertise. The qualiﬁcations of the Committee and meeting attendances are set out in the Directors’ Report section of the Company’s annual report. The performance of the Board, its Committees and the Directors is reviewed periodically by the Committee. The Committee’s principal evaluation benchmark is the Company’s ﬁnancial performance compared to similar organisations and the industry in which it operates; but other than that no formalised annual evaluation 38 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 Table 1 – Skills Matrix Skills and Experience Corporate governance Strategic planning International Gaming/ lotteries industry Risk management Financial management Technology/IT Digital or social media Leadership Legal Stakeholder relationships Demographic background Gender Male Female Age 25-40 41-55 56-70 Ethnicity Aboriginal or Torres Straits Islander Asian White/Caucasian Level of Importance Current Board Representation Recruitment Priority 3 3 2 3 3 2 2 2 3 2 2 2 2 1 2 3 2 2 2 3 3 2 3 3 3 2 2 3 2 3 3 0 0 1 2 0 0 3 1 1 2 1 1 1 2 2 1 1 1 1 2 1 2 1 2 2 1 The Company Secretary attends all Board and committee those persons may generally deal in securities during stated ‘trading meetings, is responsible for monitoring adherence to Board policy windows’ and at other times provided they obtain the prior consent and procedures, and is accountable on governance matters. of the Board Chairman (or, in the case of the Chairman himself, from 3. Act ethically and responsibly In Principle 3 the Council states that companies should “act ethically and responsibly”. To this end, Jumbo has formally adopted a Code of Conduct covering its Directors, ofﬁcers and employees. The Code is based on respect for the law and acting accordingly, dealing with conflicts of interest appropriately, and ethical matters such as acting with integrity, exercising due care and diligence in fulﬁlling duties, acting in the best interests of the Company and respecting the conﬁdentiality of all sensitive corporate information. If a Director or ofﬁcer becomes aware of unlawful or unethical behaviour by anyone in the Company then he is obliged under the Code to report such activities to the Chairman. the Chair of the Audit Committee). The Board will ensure that restrictions on dealings in securities are strictly enforced. 4. Safeguard integrity in corporate reporting The Council states that companies should “have formal and rigorous processes that independently verify and safeguard the integrity of their corporate reporting.” Jumbo has an established Audit and Risk Management Committee which operates under an Audit and Risk Management Committee Charter. The role of this Committee is to ensure the truthful and factual presentation of the Company’s ﬁnancial position and to monitor and review on behalf of the Board the effectiveness of the Company’s control environment, reporting The Board has also approved a Whistleblower Policy pursuant to which employees who have genuine suspicions about improper practices and responsibilities in the areas of accounting, risk management and compliance. To assist this process, as required conduct feel safe to report it without fear of reprisal. by Section 295A of the Corporations Act, the CEO and the Chief In addition, Directors recognise the legal obligations relevant to their role and the reasonable expectations of shareholders, other stakeholders and the wider ﬁnancial community. Jumbo also has a documented Share Trading Policy for Directors, key management personnel and other staff and consultants. The policy prohibits Directors and other persons from dealing in the Company’s securities during stated ‘closed’ and ‘prohibited’ periods and whilst in possession of price sensitive information. Otherwise, Financial Ofﬁcer must declare to the Board in writing that, in their opinion, the Company’s ﬁnancial reports are complete and present a true and fair view, in all material respects, of the ﬁnancial condition and operational results of the Company, are in accordance with relevant accounting standards, and that their opinion has been formed on the basis of a sound system of risk management and internal control which is operating effectively. The Committee’s Charter includes information on procedures for the selection and appointment of the external auditor and rotation JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 39 of the engagement audit partner. The external auditor is required to operations, and provide explanatory background and technical attend the Company’s annual general meeting and be available to information. answer shareholder questions about the conduct of the audit and the preparation and content of the audit report. In accordance with the Council’s Recommendations the Audit and Risk Management Committee’s Charter requires it to have three non-executive Directors, with a majority being independent. However, currently it has only two members, being the non-executive Directors, Bill Lyne (as Chair) and David Barwick, both of whom have strong ﬁnance and accounting backgrounds, experience and appropriate technical expertise. The qualiﬁcations of the Committee and meeting attendances are set out in the Directors’ Report section of the Company’s annual report. Minutes of all Committee meetings are provided to the Board and its Chair also reports to the Board after each Committee meeting. 5. Make timely and balanced disclosure In this Principle the Council states that companies should “make timely and balanced disclosure of material matters concerning the company that a reasonable person would expect to have a material effect on the price or value of its securities.” Jumbo is committed to the promotion of investor conﬁdence by ensuring that trading in the Company’s securities takes place in an informed market. Also to assist compliance with continuous disclosure requirements under the ASX Listing Rules, the Company has a Continuous Disclosure Policy in place to ensure that material price sensitive information is identiﬁed, reviewed by management and disclosed to the ASX and 7. Recognise and manage risk In this Principle the Council states that companies should “establish a sound risk management framework and periodically review the effectiveness of that framework”. Jumbo maintains documented policies for identifying, assessing and monitoring risk, summarised in a Risk Management Policy. Through the Audit and Risk Management Committee, as noted under Principle 4 above, the Company monitors key business and ﬁnancial risks, taking into consideration their likelihood and impact, and reviews and appraises risk control measures. The Company does not have a separate internal audit function due to its relatively small size and less complex ﬁnancial and organisational structures. The CEO and senior executives have operational responsibility for risk management through Board approved guidelines. Some of these measures include formal authority limits for management to operate within, policies on treasury-related risk management, an information technology plan and a business continuity plan. The CEO reports to the Board on any departures from policy or matters of concern that might be seen as or become material business risks. Periodic reviews evaluate and continually improve the effectiveness of risk management and internal control processes. In addition, the CEO and CFO are required to state in writing annually to the Board that to the best of their knowledge the published on the Company’s website in a timely manner. The CEO is integrity of the Company’s risk management, internal control and accountable for compliance with this policy. compliance systems are sound and such systems are operating In addition, all changes in Directors’ interests in the Company’s securities are promptly reported to the ASX in compliance with Section 205G of the Corporations Act and the ASX Listing Rules. The Company’s Annual Report is also used to keep investors informed, particularly in its review of operations and activities. 6. Respect the rights of shareholders In Principle 6 the Council states that companies should “respect the rights of shareholders by providing them with appropriate information and facilities to allow them to exercise those rights effectively”. Jumbo supports its desire to provide shareholders with adequate information about the Company and its activities through a published Communications Policy. It is also committed to electronic communications through its website, www. jumbointeractive.com, which provides access to all recent ASX efﬁciently and effectively in all material respects in relation to ﬁnancial reporting risks. 8. Remunerate fairly and responsibly The Council’s ﬁnal Principle states that companies should “pay director remuneration sufﬁcient to attract and retain high quality directors and design executive remuneration to attract, retain and motivate high quality senior executives and align their interests with the creation of value for shareholders”. To this end the Board has established during the year a Nomination and Remuneration Committee, as noted above under Principle 2. The Board considers that the Committee members are sufﬁciently qualiﬁed to consider and decide on remuneration matters. However, external professional advice may be sought from experienced consultants where appropriate to assist in their deliberations. announcements, shareholder updates, boardroom broadcasts, Non-executive Directors’ remuneration is reviewed periodically with notices of meetings, explanatory memoranda, annual reports and reference to comparable businesses and the trend in Directors’ key contact details, as well as comprehensive information about the fees generally, with the object of ensuring maximum stakeholder Company and its products and operations. Shareholders and other beneﬁt from the retention of an effective Board. Shareholders, at interested parties may sign up to receive email notiﬁcation of all the Company’s AGM, determine any increase in the aggregate ASX releases and other important announcements. fees payable to non-executive Directors, but it is those Directors Company general meetings also represent a good opportunity for shareholders to meet with, and ask questions of, the Board of Jumbo and all shareholders are notiﬁed of such meetings and encouraged to attend. As part of the Company’s management of investor relations the CEO does, at times, also undertake brieﬁngs with investors and analysts to assist their understanding of the Company and its who decide amongst themselves the split of such remuneration. The current maximum annual aggregate remuneration which can be paid to all non-executive Directors is $250,000, last approved by shareholders in October 2009. In the past, shareholders have at times approved share option incentives for the non-executive Directors. The current non-executive Directors do not hold shares or options in the Company as they believe that this maintains their independence. 40 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 The CEO’s remuneration is based on a ﬁxed amount and may include short term incentives (calculated on audited ﬁgures) linked to the Company’s ﬁnancial performance and share options provided as long term incentives. The base amount is designed to attract and retain an appropriately qualiﬁed and experienced CEO, and any incentive element is to reward him for his contribution towards the Company’s success. Other senior executives are offered remuneration packages necessary to attract and retain appropriately qualiﬁed key personnel as well as being commensurate with the skill and attention required to manage an organisation of the size and scope of the Jumbo Group as it is today and taking into account its plans and forecasts into the future. In addition, the Company has an Employee Option Plan in place and from time to time has granted options to deserving staff as a reward for performance. However, the Board prohibits transactions by executives which might limit the economic risk of participating in unvested entitlements under any equity-based remuneration scheme. Further information about the Jumbo remuneration policy, along with details of all emoluments of Directors and key management personnel can be found in the Remuneration Report section of the Directors’ Report in the Company’s Annual Report. There are no separate retirement beneﬁts for non-executive Directors, other than statutory superannuation. Approved by the Board – 24 August 2017 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 41 Financial Report For the year ended 30 June 2017 Financial Statements Consolidated statement of proﬁt or loss and other comprehensive income Consolidated statement of ﬁnancial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the ﬁnancial statements About this report Key events and transactions for the reporting period Page 42 Page 43 Page 44 Page 46 Page 47 Page 47 Results for the year Operating assets and Capital and ﬁnancial Group structure Other information Unrecognised items Page 48 liabilities Page 55 risk management Page 62 Page 67 Page 70 Page 77 Note 1: Segment infor- mation Note 7: Cash and cash equivalents Note 13: Capital risk management Note 18: Controlled subsidiaries Note 2: Revenue and other income Note 8: Trade and other receivables Note 14: Dividends Note 19: Parent disclo- sures Note 3: Expenses Note 9: Property, plant and equipment Note 15: Equity and reserves Note 4: Income tax Note 10: Intangible assets Note 16: Borrowings Note 5: Earnings per share Note 11: Trade and other payables Note 17: Financial risk management Note 6: Discontinued operations Note 12: Provisions Note 20: Investments accounted for using the Equity Method Note 21: Availa- ble-for-sale ﬁnancial assets (non-current) Note 27: Contingencies Note 28: Commitments Note 22: Related party transactions Note 29: Events after the reporting date Note 23: Key Man- agement Personnel compensation Note 24: Share-based payments Note 25: Remuneration of auditors Note 26: Summary of other signiﬁcant ac- counting policies Signed reports Directors’ declaration Independent auditor’s report ASX information Shareholder information Company Information Page 79 Page 80 Page 84 Page 86 42 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 Jumbo Interactive Limited and its Controlled Subsidiaries Consolidated Statement Of Proﬁt Or Loss And Other Comprehensive Income For the year ended 30 June 2017 Revenue from continuing operations Cost of sales Gross proﬁt Other revenue/income Distribution expenses Marketing costs Occupancy expenses Administrative expenses Impairment of investment Finance costs Share of losses of associates/joint ventures accounted for using the equity method Proﬁt/(loss) before income tax expense Income tax expense Proﬁt/(loss) after income tax from continuing operations Proﬁt/(loss) from discontinued operations Proﬁt/(loss) after income tax expense for the year attributable to the owners of Jumbo Interactive Limited Other comprehensive income Items that may be reclassiﬁed subsequently to proﬁt or loss Foreign currency translation Reclassiﬁcation of foreign exchange differences on loss of control of subsidiary Other comprehensive income for the year, net of tax Total comprehensive income for the year attributable to the owners of Jumbo Interactive Limited Earnings Per Share (cents per share) From continuing and discontinued operations Basic earnings per share (cents per share) Diluted earnings per share (cents per share) From continuing operations Basic earnings per share (cents per share) Diluted earnings per share (cents per share) From discontinued operations Basic earnings per share (cents per share) Diluted earnings per share (cents per share) Note 2 3 2 3 4 6 5 5 5 5 5 5 2017 $’000 32,429 (2,465) 29,964 1,064 (24) (3,566) (959) (15,405) - (6) - 11,068 (3,471) 7,597 (1,957) 2016 $’000 34,083 (2,803) 31,280 1,197 (34) (4,486) (879) (15,728) (454) (6) (173) 10,717 (3,394) 7,323 (2,653) 5,640 4,670 (68) 563 495 6,135 ¢ 12.6 12.3 16.9 16.5 (4.3) (4.2) (102) - (102) 4,568 ¢ 10.6 10.6 16.6 16.6 (6.0) (6.0) The above Consolidated Statement of Proﬁt or Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes. JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 43 Jumbo Interactive Limited and its Controlled Subsidiaries Consolidated Statement Of Financial Position As at 30 June 2017 CURRENT ASSETS Cash and cash equivalents Trade and other receivables Inventories TOTAL CURRENT ASSETS NON-CURRENT ASSETS Receivables Property, plant and equipment Intangible assets Deferred tax assets TOTAL NON-CURRENT ASSETS TOTAL ASSETS CURRENT LIABILITIES Trade and other payables Current tax liabilities Employee beneﬁt obligations TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Employee beneﬁt obligations Make good provision Deferred tax liabilities TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity Accumulated losses Proﬁts Appropriation Reserve Reserves TOTAL EQUITY Note 2017 $’000 2016 $’000 7 8 22 9 10 4 11 4 12 12 4 15 43,320 25,306 548 62 568 62 43,930 25,936 - 341 11,574 908 12,823 56,753 100 401 10,719 1,076 12,296 38,232 13,009 12,239 184 293 13,486 277 24 66 367 13,853 42,900 45,492 (17,399) 15,745 (938) 42,900 697 281 13,217 271 - 48 319 13,536 24,696 29,827 (17,399) 13,850 (1,582) 24,696 The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes. 44 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 Jumbo Interactive Limited and its Controlled Subsidiaries Consolidated Statement Of Changes In Equity For the year ended 30 June 2017 Contributed equity CONSOLIDATED GROUP Balance at 1 July 2015 Total comprehensive income for the year Proﬁt/(loss) for the year Other comprehensive income Total comprehensive income for the year Transactions with owners in their capacity as owners Issue of shares Dividends paid Share-based payments Total transactions with owners in their capacity as owners Balance at 30 June 2016 Total comprehensive income for the year Proﬁt/(loss) for the year Other comprehensive income Total comprehensive income for the year Transactions with owners in their capacity as owners Issue of shares Dividends paid Share-based payments Total transactions with owners in their capacity as owners Balance at 30 June 2017 $’000 29,970 - - - (143) - - (143) 29,827 - - - 15,665 - - 15,665 45,492 Accumulated Proﬁts appropriation losses $’000 (17,399) - - - - - - - (17,399) - - - - - - - (17,399) reserve $’000 10,724 4,670 - 4,670 - (1,544) - (1,544) 13,850 5,640 - 5,640 - (3,745) - (3,745) 15,745 The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes Share-based payments reserve Foreign currency translation reserve Total equity $’000 777 134 134 911 - - - - - - - - - - 149 149 1,060 Available-for-sale ﬁnancial asset reserve $’000 (2,302) (2,302) - - - - - - - - - - - - - - $’000 (89) (102) (102) - - - - - - - - - - (191) 495 495 304 (2,302) $’000 21,681 4,670 (102) 4,568 (143) (1,544) 134 (1,553) 24,696 5,640 495 6,135 15,665 (3,745) 149 12,069 42,900 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 45 Jumbo Interactive Limited and its Controlled Subsidiaries Consolidated Statement Of Changes In Equity For the year ended 30 June 2017 CONSOLIDATED GROUP Balance at 1 July 2015 Total comprehensive income for the year Proﬁt/(loss) for the year Other comprehensive income Total comprehensive income for the year Transactions with owners in their capacity as owners Issue of shares Dividends paid Share-based payments Balance at 30 June 2016 Total transactions with owners in their capacity as owners Total comprehensive income for the year Proﬁt/(loss) for the year Other comprehensive income Total comprehensive income for the year Transactions with owners in their capacity as owners Issue of shares Dividends paid Share-based payments Balance at 30 June 2017 Total transactions with owners in their capacity as owners $’000 29,970 (143) (143) 29,827 - - - - - - - - - - 15,665 15,665 45,492 losses $’000 (17,399) (17,399) - - - - - - - - - - - - - - (17,399) reserve $’000 10,724 4,670 4,670 - - - - - - (1,544) (1,544) 13,850 5,640 5,640 (3,745) (3,745) 15,745 The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes Contributed equity Accumulated Proﬁts appropriation Share-based payments reserve Foreign currency translation reserve $’000 777 - - - - - 134 134 911 - - - - - 149 149 1,060 $’000 (89) - (102) (102) - - - - (191) - 495 495 - - - - 304 Available-for-sale ﬁnancial asset reserve $’000 (2,302) - - - - - - - (2,302) - - - - - - - (2,302) Total equity $’000 21,681 4,670 (102) 4,568 (143) (1,544) 134 (1,553) 24,696 5,640 495 6,135 15,665 (3,745) 149 12,069 42,900 46 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 Jumbo Interactive Limited and its Controlled Subsidiaries Consolidated Statement Of Cash Flows For the year ended 30 June 2017 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers Payments to suppliers and employees Interest received Interest and other costs of ﬁnance paid Income tax paid Net cash inflows/(outflows) from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Payments for investments Loan to related party Payments for property, plant and equipment Payments for intangibles Payment on loss of control of foreign subsidiary Proceeds from sale of property, plant and equipment Net cash inflows/(outflows) from investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of shares Payments for share buybacks Dividends paid Net cash inflows/(outflows) from ﬁnancing activities Net increase/(decrease) in cash and cash equivalents Net foreign exchange differences Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Note 7 6 15 15 14 7 2017 $’000 35,888 (21,781) 564 (6) (3,799) 10,866 - - (162) (4,448) (159) - (4,769) 15,665 - (3,745) 11,920 18,017 (3) 25,306 43,320 2016 $’000 37,220 (24,976) 611 (6) (4,502) 8,347 (84) (100) (164) (4,791) - 8 (5,131) - (143) (1,544) (1,687) 1,529 (1) 23,778 25,306 The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes. JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 47 Jumbo Interactive Limited and its Subsidiaries Notes To The Consolidated Financial Statements For the year ended 30 June 2017 About this report Jumbo Interactive Limited is a company limited by shares, Signiﬁcant and other accounting policies that summarise the measurement basis used and are relevant to an understanding of the ﬁnancial statements are provided throughout the notes of the ﬁnancial statements. SIGNIFICANT JUDGEMENTS AND ESTIMATES In the process of applying the Group’s accounting policies, management has made a number of judgements and applied incorporated and domiciled in Australia, whose shares are publicly estimates of future events. Judgements and estimates which traded on the Australian Securities Exchange (ASX: JIN), and is a for- are material to the consolidated ﬁnancial statements include: proﬁt entity for the purposes of preparing the ﬁnancial statements. The consolidated ﬁnancial statements are for the consolidated entity consisting of Jumbo Interactive Limited (the Company) and its subsidiaries and together are referred to as the Group or Jumbo. Estimated useful life of website development costs The consolidated ﬁnancial statements were approved for issue in Goodwill and other intangible assets Note Page 10 10 58 58 accordance with a resolution by the Directors on 24 August 2017. The In addition, in preparing the ﬁnancial statements, the notes Directors have the power to amend and reissue the consolidated to the ﬁnancial statements were ordered such that the most ﬁnancial statements. The consolidated ﬁnancial statements are general purpose ﬁnancial statements which: — Have been prepared in accordance with the Corporations Act 2001, Australian Accountings Standards and Interpretations issued by the Australian Accounting Standards Board (AASB) and International Financial reporting Standards (IFRS) issued by relevant information was presented earlier in the notes and that the disclosures that management deemed to be immaterial were excluded from the notes to the ﬁnancial statements. The determination of the relevance and materiality of disclosures involved signiﬁcant judgement. Key events and transactions for reporting period The ﬁnancial position and performance of the Group was the International Financial Standards Board particularly affected by the following events and transactions during — Have been prepared under the historical cost convention the reporting period: — Are presented in Australian dollars (A$), with all amounts in the ﬁnancial report being rounded off in accordance with the 1. The lower level of large jackpot activity (see Directors’ Report for requirements of ASIC Corporations (Rounding in Financial/ details); Directors’ Reports) Instrument 2016/191 issued by the Australian 2. The share issue to Tatts and resultant increase in cash (see Securities and Investments Commission to the nearest thousand Directors’ Report for details); and dollars, unless otherwise indicated 3. Discontinuing the operation in Germany (see note 6 for details). — Where necessary, comparative information has been restated to conform with changes in presentation, in the current year — Adopts all new and amended Accounting Standards and Interpretations issued by the AASB that are relevant to the operations of the Group effective for reporting periods beginning on or after 1 July 2016 The notes to the ﬁnancial statements The notes include ﬁnancial information which is required to understand the consolidated ﬁnancial statements and is material and relevant to the operations, ﬁnancial position and performance of the Group. Information is considered material and relevant if, for example: — The amount in question is signiﬁcant because of its size or nature — It is important for understanding the results of the Group — It helps explain the impact of signiﬁcant changes in the Group’s business – for example, acquisitions and impairment write downs — It relates to an aspect of the Group’s operations that is important to its future performance 48 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 Results for the year IN THIS SECTION Results for the year provides segment information and a breakdown of individual line items in the consolidated statement of proﬁt or loss and other comprehensive income that the Directors consider most relevant, including a summary of the accounting policies, relevant to understanding these line items. Note 1: Segment information Note 2: Revenue and other income Note 3: Expenses Note 4: Income tax Note 5: Earnings per share Note 6: Discontinued operations Page 49 Page 50 Page 51 Page 51 Page 52 Page 53 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 49 Note 1: Segment information international jurisdictions, and internet database management/ marketing. The dormant Mexico Internet Lotteries business is also Jumbo determines and presents operating segments on a product included due to its similar characteristics. and a geographic basis as this is how the results are reported internally to the Board (chief operating decision maker) and how the business is managed. The Board assesses the performance of the Group based on the net proﬁt before tax (NPBT). Comparatives for 2016 are stated on this basis. During the 2017 ﬁnancial year, the Internet Lotteries Germany segment was reclassiﬁed as a discontinued operation – refer note 6 for details. (a) Description of segments The following summary describes the operations in each of the Group’s reportable segments: Internet Lotteries Australia Retail of Australian lottery tickets sold in Australia and eligible Other Business activities which are not reportable in terms of AASB 8, which are currently the online sale of an internally developed proprietary payroll software system. Corporate Corporate costs include costs in respect of the Directors, CEO, CFO, corporate advertising, promotion and marketing, corporate investment and ﬁnance, tax, audit, risk, governance, and strategic projects. (b) Segment information The segment information provided to the Board is as follows: 2017 External revenue Internal revenue Total revenue Cost of Sales Gross Proﬁt Other revenue/income from external customers Distribution expenses Marketing costs Occupancy expenses Administrative expenses Finance costs NPBT continuing operations Income tax expense NPAT continuing operations Discontinued operations NPAT overall operations (per P&L) Interest revenue Depreciation and amortisation Impairment of assets Foreign exchange gain/(loss) Internet Lotteries Australia $’000 31,586 - 31,586 (2,465) 29,121 857 (24) (3,458) (939) (13,217) - 12,340 470 (3,513) (62) 263 Other $’000 843 - 843 - 843 - - (85) (20) (331) - 407 - (118) - - Corporate Eliminations operations Total continuing $’000 $’000 - - - - - 207 - (23) - (1,857) (6) (1,679) 135 - - - - - - - - - - - - - - - - - - - $’000 32,429 32,429 (2,465) 29,964 1,064 (24) (3,566) (959) (15,405) (6) 11,068 (3,471) 7,597 (1,957) 5,640 605 (3,631) (62) 263 50 2016 External revenue Internal revenue Total revenue Cost of Sales Gross Proﬁt Other revenue/income from external customers Distribution expenses Marketing costs Occupancy expenses Administrative expenses Impairment of investment Finance costs Share of losses of associate companies NPBT continuing operations Income tax expense NPAT continuing operations Discontinued operations NPAT overall operations (per P&L) Interest revenue Depreciation and amortisation Foreign exchange gain/(loss) Impairment of investments Share of losses of associate company Internet Lotteries Australia $’000 33,239 - 33,239 (2,803) 30,436 949 (34) (4,345) (865) (13,774) - - - Other $’000 844 - 844 - 844 - - (75) (14) (362) - - - 12,367 393 496 (3,493) 247 - - - (151) - - - JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 Corporate Eliminations operations Total continuing $’000 $’000 - - - - - 248 - (66) - (1,592) (454) (6) (173) (2,043) 148 - 20 (454) (173) - - - - - - - - - - - - - - - - - - - $’000 34,083 34,083 (2,803) 31,280 1,197 (34) (4,486) (879) (15,728) (454) (6) (173) 10,717 (3,394) 7,323 (2,653) 4,670 644 (3,644) 267 (454) (173) (c) Other segment information Geographical information The entity is domiciled in Australia. The amount of its revenue from external customers in Australia is $28,965,000 (2016: $30,997,000), and the total revenue from external customers in other countries is $4,528,000 (2016: $4,283,000). Revenues of $1,834,000 (2016: $1,910,000) are from external customers in Fiji. Segment revenues From continuing operations Sales revenue – Revenue from sale of goods are allocated based on the country in which the customer is located. – Revenue from rendering of services Non-current assets in Australia are $11,890,000 (2016: $11,120,000). Non-current assets in other countries are (i) Germany $nil (2016: $29,000), and (ii) Fiji $24,000 (2016: $36,000). The geographical non-current assets above are exclusive of, where applicable, ﬁnancial instruments, deferred tax assets, post- employment beneﬁts assets, and rights under insurance contracts. Other revenue/income – Interest – Cash – Other income – Foreign exchange gains – Export market development grants No single external customer derives more than 10% of total revenues. – Other Note 2: Revenue and other income The Company reports revenue from the sale of lottery tickets and related services on a net revenue inflow basis where it considers that it acts more as an Agent than as a Principal such as with the sale of lottery tickets. The gross amount received for the sale of goods and rendering of services is advised as Total Transaction Value (“TTV”) for information purposes. Consolidated Group 2017 $’000 2,510 29,919 32,429 2016 $’000 2,575 31,508 34,083 605 644 263 111 85 1,064 267 120 166 1,197 33,493 35,280 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 51 From discontinued operations (note 6) Sales revenue – Revenue from rendering of services Other revenue/income – Other income – Other Consolidated Group 2017 $’000 2016 $’000 138 138 177 177 315 258 258 38 38 296 Recognition and measurement Revenue is recognised at the fair value of consideration received or receivable. Amounts disclosed as revenue are net of returns, trade allowances and duties and taxes paid. The following speciﬁc recognition criteria must also be met before revenue is recognised: Sale of Goods Cost of sales – Sale of goods – Rendering of services Administration expenses Consolidated 2017 $’000 1,152 1,313 2016 $’000 1,201 1,602 Depreciation of non-current assets – Plant and equipment 149 145 Amortisation of non-current assets – Leasehold improvements – Intangibles Other expenses 41 3,441 66 3,433 – Employee beneﬁt expense 6,468 6,074 – Deﬁned contribution superannuation expense Occupancy expenses – Operating lease rentals minimum lease payments Impairment of assets – domain names 824 898 959 62 879 - Revenue from sale of goods is recognised when the signiﬁcant risks and rewards of ownership have passed to the buyer and can be reliably measured. Risks and rewards are considered passed to buyer when goods have been delivered to the customer. Note 4: Income tax Liabilities Rendering of Services Revenue is recognised when the service is provided. CURRENT Income tax expense Interest Revenue is recognised as interest accrues using the effective interest method. The effective interest method uses the effective (a) Income tax expense interest rate which is the rate that exactly discounts the estimated future cash receipts over the expected life of the ﬁnancial asset. Dividends Dividends are recognised as revenue when the Group’s right to The components of tax expense comprise: receive payment is established. Dividends received in the entity’s – Current tax separate ﬁnancial statements that are paid out of pre-acquisition – Deferred tax proﬁts of a subsidiary, associate or joint venture are recognised as revenue when the entity’s right to receive payment is established. – Under/over provision deferred tax previous years Consolidated 2017 2016 Note $’000 $’000 184 697 Consolidated 2017 2016 Note $’000 $’000 3,284 4(b) 186 - - 1 3,771 (348) (8) (32) 11 Government grants The export market development grant from the government is recognised at its fair value when there is reasonable assurance that the grant will be received and the Group will comply with any attached conditions. Note 3: Expenses Proﬁt from continuing operations before income tax includes the following speciﬁc expenses: – Under/over provision tax prior years – Current tax overseas operations Total income tax expense/(beneﬁt) in proﬁt and loss 3,471 3,394 Reconciliation Proﬁt before income tax expense 9,111 8,064 – Tax at the Australian tax rate 30% (2016:30%) – Income tax effect of overseas tax rates – Share options expensed during year – Other – Under/over provision tax prior years Total income tax expense in proﬁt or loss attributable to continuing operations 2,733 2,419 338 44 356 - 818 40 149 (32) 3,471 3,394 52 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 (b) Deferred tax the tax rates expected to apply when the assets are recovered or liabilities settled, based on those tax rates which are enacted or Deferred tax liabilities Opening Charged to Closing substantively enacted for each jurisdiction. Exceptions are made Deferred tax liabilities comprise temporary difference recog- nised in the proﬁt and loss as follows: Property, plant and equipment – Depreciation Accruals Other Balance at 30 June 2016 Property, plant and equipment – Depreciation Accruals Other Balance as at 30 June 2017 balance Proﬁt or Loss Balance for certain temporary differences arising on initial recognition of $000 $000 $000 an asset or a liability if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting proﬁt or taxable proﬁt. 5 - 32 37 1 24 23 48 (4) 24 (9) 11 (1) 42 (23) 18 Deferred tax assets are only recognised for deductible temporary differences if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax assets and liabilities are not recognised for temporary differences between the carrying amount and tax bases of investments in subsidiaries and associates where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Current and deferred tax balances relating to amounts recognised directly in other comprehensive income are also recognised directly in other comprehensive income. 1 24 23 48 - 66 - 66 Deferred tax assets Opening Charged to Closing balance Proﬁt or Loss Balance $000 $000 $000 Deferred tax assets comprise temporary difference recog- nised in the proﬁt and loss as follows: Property, plant and equipment – Depreciation – Amortisation Accruals Provisions Other Balance at 30 June 2016 Property, plant and equipment – Depreciation – Amortisation Accruals Provisions Other 93 206 74 320 24 717 124 370 179 387 16 31 164 105 67 (8) 359 (5) (211) 23 29 (4) Balance as at 30 June 2017 1,076 (168) 124 370 179 387 16 1,076 119 159 202 416 12 908 Recognition and measurement Current taxes The income tax expense for the period is the tax payable on the current period’s taxable income based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets Tax consolidation Jumbo Interactive Limited and its wholly owned Australian controlled subsidiaries are part of a tax consolidated group under Australian taxation law since 1 July 2006. Jumbo Interactive Limited is the head entity in the tax consolidated group. Entities within the tax consolidation group have entered into a tax funding agreement ‘(TFA’) and tax sharing deed (‘TSD’) with the head entity. Under the terms of the TFA, Jumbo Interactive Limited and each of the entities in the tax consolidation group have agreed to pay (or receive) a tax equivalent payment to (or from) the head entity, based on the current tax liability or current tax asset of the entity. Note 5: Earnings per share (EPS) (a) Basic earnings per share Basic EPS is calculated by dividing the proﬁt attributable to owners of the Company by the weighted average number of ordinary shares outstanding. (b) Diluted earnings per share Diluted EPS is calculated by dividing the proﬁt attributable to owners of the Company by the weighted average number of ordinary shares outstanding after adjusted for the effects of dilutive potential ordinary shares (c) Proﬁt after tax attributable to owners of the Company used as numerator Consolidated 2017 $’000 7,597 (1,957) 2016 $’000 7,323 (2,653) 5,640 4,670 and liabilities attributable to temporary differences between the Proﬁt from continuing operations tax base of assets and liabilities and their carrying amounts in the consolidated ﬁnancial statements. Deferred taxes Deferred tax assets and liabilities are recognised for all temporary differences, between carrying amounts of assets and liabilities for ﬁnancial reporting purposes and their respective tax bases, at Proﬁt from discontinued operation Proﬁt attributable to the owners of the Company JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 53 (d) Weighted average number of shares used as denominator Consolidated 2017 2016 Number Number Revenue Expenses Weighted average number of ordinary shares used as the denominator in calculat- ing basic EPS 44,954,344 44,119,040 Adjustments for calculation of diluted EPS: — options 980,179 - Weighted average number of ordinary shares used as the denominator in calculat- ing diluted EPS 45,934,523 44,119,040 1,800,000 options were not included in the number of weighted average number of ordinary shares used to calculate diluted Loss before income tax Income tax (expense)/beneﬁt Loss after income tax Loss on loss of control of subsidiary in volun- tary administration Reclassiﬁcation of foreign currency translation reserves to the income statement1 Loss on loss of control before income tax Income tax (expense)/beneﬁt earnings per share because they are currently out-of-the-money. Loss on loss of control after income tax 2017 2016 $’000 $’000 315 296 (1,467) (2,949) (1,152) (2,653) - - (1,152) (2,653) (242) (563) (805) - (805) - - - - - Note 6: Discontinued operations Loss for the year from discontinued operation (1,957) (2,653) On 3 November 2016, Jumbo Interactive Limited announced its intention to scale down Jumbo Interactive GmbH, its Internet lotteries German business segment, due to adverse market conditions and, as disclosed in the 2016 Half Year Report, on 5th December 2016 the sale of lottery tickets ceased. The business was subsequently placed into voluntary administration (VA) on 31 March 2017 and is reported as a discontinued operation as Jumbo no longer has control. The purpose of the VA is to facilitate the orderly closure and wind-up of the business in compliance with German Legal requirements. Financial information relating to the discontinued operation for the nine month period to the date of voluntary administration and the year ended 30 June 2016 is set out below. Proﬁt attributable to owners of the parent entity relates to: Proﬁt/(loss) from continuing operations Proﬁt/(loss) from discontinued operations 7,597 (1,957) 5,640 7,323 (2,653) 4,670 1Foreign currency loss relates to the historical foreign currency translation reserve in respect of Jumbo’s investment in Germany, reclassiﬁed to the income statement on loss of control through voluntary administration. Net cash inflow/(outflow) from operating activ- ities 2017 2016 $’000 $’000 (1,353) (2,786) Net cash inflow/(outflow) from investing activities (88) (15) Net cash inflow/(outflow) from ﬁnancing activ- ities - - Net cash increase/(decrease) in cash generated from discontinued operations (1,441) (2,801) Details of the voluntary administration of Jumbo Interactive GmbH Cash paid to administrator on loss of control Total cash lost on loss of control Carrying amount of net assets over which control was lost Loss on loss of control of subsidiary before income tax Income tax beneﬁt Loss on loss of control of subsidiary after income tax 2017 $’000 159 159 83 242 - 242 The carrying amounts of the assets and liabilities as at the date of voluntary administration (31 March 2017) were: 54 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 Note 6: Discontinued operations (cont) Property, plant and equipment Intangible assets Trade and other receivables Total assets Trade and other payables Total liabilities Net assets 31 March 2017 $’000 19 64 87 170 (87) (87) 83 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 55 Operating assets and liabilities IN THIS SECTION Operating assets and liabilities provides information about the working capital of the Group and major balance sheet items, including the accounting policies, judgements and estimates relevant to understanding these items. Note 7: Cash and cash equivalents Note 8: Trade and other receivables Note 9: Property, plant and equipment Note 10: Intangible assets Note 11: Trade and other payables Note 12: Employee beneﬁt obligations Page 56 Page 56 Page 57 Page 58 Page 60 Page 60 56 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 Note 7: Cash and cash equivalents Consolidated 2017 2016 Note $’000 $’000 (a) Cash and cash equivalents Total cash and cash equivalents 43,320 25,306 Included in the above balance: General account balances 35,825 18,251 Online lottery customer account bal- ances Consolidated 2017 2016 $’000 $’000 (b) Reconciliation of Cash Flow from Operations with Proﬁt after Income Tax Proﬁt/(loss) for the year after income tax 5,640 4,670 Non-cash flows Amortisation Depreciation Derecognition of subsidiary Share of losses of associate company accounted for using the equity method 11 7,495 7,055 43,320 25,306 Capitalised other revenue from associate com- pany Online lottery customer account balances are deposits and prize winnings earmarked for payment to customers on demand. Recognition and measurement Cash and cash equivalents includes cash on hand, and deposits held ‘at call’ and with original maturities of three months or less, with ﬁnancial institutions. Impairment losses on investment Share option expense Other Changes in operating assets and liabilities, net of the effects of purchase and disposal of subsidi- aries Decrease/(increase) in trade receivables Decrease/(increase) in other receivables Decrease/(increase) in inventories Decrease/(increase) in DTA Decrease/(increase) in foreign exchange reserve Increase/(decrease) in trade payables Increase/(decrease) in other payables Increase/(decrease) in other provisions Increase/(decrease) in DTL Increase/(decrease) in provision for income tax 3,504 3,501 160 242 - (114) - 149 186 26 94 - 168 495 9 708 95 18 (514) 167 - 173 (111) 454 134 (113) (18) (56) 1 (359) - (165) 665 154 11 (761) Cash flow from operations 10,866 8,347 (c) Non-Cash Financing and Investing Activities Capitalised interest at 7.00% p.a. on Promissory Note issued by associate company (note 20) Capitalised dividend on Series A Preferred Stock issued by associate company (note 21) 41 73 33 78 Note 8: Trade and other receivables Consolidated 2017 2016 Note $’000 $’000 CURRENT Trade receivables Allowance for doubtful debts Loans to key management personnel 22 Other receivables Prepayments 95 - 95 100 170 183 548 121 - 121 - 271 176 568 All receivables that are neither past due nor impaired are with long standing clients who have a good credit history with the Group. JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 57 Total $’000 486 164 (20) 146 - - (66) (233) - 80 80 62 - (41) - 101 4 401 401 162 (20) (201) (1) 341 340 164 (20) (167) 4 321 321 100 (20) (160) (1) 240 Past due but not impaired These trade receivables relate to a few customers for whom there is no recent history of default. The aging of past due but not impaired trade receivables are as follows: Movements in Carrying Amounts Plant and Leasehold Im- equipment provements Consolidated Group $’000 $’000 Up to one month One month to two months Two months to three months Over three months Consolidated 2016 2017 2016 $’000 $’000 - - 17 - 17 - - 6 70 76 Balance at the beginning of year Additions Disposals Depreciation/amortisa- tion expense Effects of movements in foreign exchange Carrying amount at the end of year As at 30 June 2017 the Group had current trade receivables of $0 2017 Balance at the beginning of year Additions Disposals Depreciation/amortisa- tion expense Effects of movements in foreign exchange Carrying amount at the end of year (2016: $0) that were impaired Recognition and measurement Trade receivables are recognised at original invoice amounts less an allowance for uncollectible amounts, and have repayment terms between seven and thirty days. Collectability of trade receivables is assessed on an ongoing basis. Debts which are known to be uncollectible are written off. An allowance is made for doubtful debts where there is objective evidence that the Group will not be able to collect all amounts due according to the original terms. Objective evidence of impairment includes ﬁnancial difﬁculties of the debtor, default payments or debts more than 90 days overdue. On conﬁrmation that the trade receivable will not be collectible the gross carrying value of the asset is written off against the associated provision. From time to time, the Group elects to renegotiate the terms of trade receivables due from customers with which it has previously had a good trading history. Such renegotiations will lead to changes in the timing of payments rather than changes to the amounts owed and are not, in the view of the Directors, sufﬁcient to require the derecognition of the original instrument. Recognition and measurement (i) Initial recognition and measurement Property, plant and equipment Property, plant and equipment is stated at historical cost, including costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management, less depreciation and any impairments. (ii) Subsequent costs Improvements to leasehold property are recognised as a separate asset. Note 9: Property, plant and equipment All repairs and maintenance are charged to the proﬁt or loss during Plant and equipment–at cost Accumulated depreciation Leasehold improvements–at cost Accumulated amortisation Total property, plant and equipment Consolidated 2017 2016 $’000 $’000 1,416 1,424 (1,176) (1,103) the reporting period in which they occur. (iii) Depreciation and amortisation Property, plant and equipment are depreciated or amortised from the date of acquisition, or, in respect of internally generated assets, from the time an asset is held ready for use. 240 542 (441) 101 341 321 481 Plant and equipment are depreciated using the straight-line method to allocate their costs, net of their residual values, over their (401) estimated useful lives. 80 401 Leasehold improvements are amortised over the shorter of either the unexpired term of the lease or the estimated useful life of the improvements. The depreciation and amortisation rates used during the year were based on the following range of useful lives: 58 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 Plant and equipment Leasehold improvements Two to ﬁve years Up to six years The depreciation and amortisation rates are reviewed annually and adjusted if appropriate. An asset’s carrying amount is written down to its recoverable amount if the asset’s carrying value is greater than its estimated recoverable amount. (iv) Derecognition An item of property, plant or equipment is derecognised when it is disposed of or no future economic beneﬁts are expected from its use or disposal. Gains and losses on disposal are calculated as the difference between the net disposal proceeds and the asset’s carrying value, and are included in proﬁt or loss in the year that the item is derecognised. Note 10: Intangible assets Goodwill Accumulated impairment losses Net carrying value Intellectual property Accumulated impairments loss Net carrying value Website development costs Accumulated amortisation Net carrying value Software costs Accumulated amortisation Net carrying value Domain names – cost Accumulated impairment losses Net carrying value Other Accumulated amortisation Net carrying value Total intangibles Consolidated 2017 2016 $’000 $’000 3,687 (855) 2,832 53 (23) 30 3,687 (855) 2,832 53 (23) 30 22,957 18,635 (15,114) (11,684) 7,843 133 (133) - 910 (62) 848 63 (42) 21 6,951 142 (138) 4 902 - 902 39 (39) - 11,574 10,719 SIGNIFICANT JUDGEMENTS AND ESTIMATES Impairment assessment of goodwill and domain names A key judgement by management with regards to the Internet Lotteries Australia segment CGU is that the reseller agreements with the Tatts Group will continue. The key assumptions used for value-in-use calculations are discussed further in note 10(b). Goodwill is tested for impairment half yearly. Impairments assessment of other intangible assets The Group considers half yearly whether there have been any indicators of impairment and then tests whether non-current assets have incurred any impairment in accordance with the accounting policy. Estimated useful life of website development costs Management estimates the useful of intangible assets- website development costs based on the expected period of time over which economic beneﬁts from the use of the asset will be derived. Management reviews useful life assumptions on an annual basis having given consideration to variables including historical and forecast usage rates, technological advancements and changes in legal and economic conditions. The amortisation period relating to the website developments costs is ﬁve years from 1 July 2015 and three years prior to that. Domain names Domain names have an indeﬁnite useful life because: — There is no time limit on the expected usage of the domain names; — Licence renewal is automatic on payment of the renewal fee without satisfaction of further renewal conditions; — The cost is not signiﬁcant when compared with future economic beneﬁts expected to flow from renewal. As such, the useful life can include the renewal period; and — Since there is no limit on the number of times the licence can be renewed this leads to the assessment of “indeﬁnite” useful life. This assessment has been based on: — Technical, technological, commercial and other types of obsolescence; — The stability of the industry in which the asset operates and changes in the market demand for the products and/or services output from the asset; — The level of maintenance expenditure required to obtain the expected future economic beneﬁts from the asset and the entity’s ability and intention to reach such a level; and — The period of control over the asset and legal or similar limits on the use of the asset. JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 59 (a) Movements in carrying values Consolidated Group Goodwill property costs Software names $’000 $’000 $’000 $’000 $’000 Other $’000 Total $’000 Intellectual development Domain Website 2016 Balance at the beginning of the year 2,832 30 Additions acquired Additions internally developed Amortisation charge Effects of movements in foreign exchange Closing value at 30 June 2016 2017 Balance at the beginning of the year Additions acquired Additions internally developed Disposals on derecognition of subsidiary Impairments Amortisation charge Effects of movements in foreign exchange Amortisation on derecignition of subsidiary - - - - 2,832 2,832 - - - - - - - - - - - 30 30 - - - - - - - 5,604 - 4,795 (3,433) (15) 6,951 6,951 - 4,330 - - (3,430) (8) - Closing value at 30 June 2017 2,832 30 7,843 6 - - (2) - 4 4 - - (9) - (1) - 6 - 890 12 - - - 902 902 8 - - (62) - - - 848 - - - - - - - 110 - (85) - (24) - 20 21 9,362 12 4,795 (3,435) (15) 10,719 10,719 118 4,330 (94) (62) (3,455) (8) 26 11,574 (b) Impairment testing of Cash-Generating Units containing intangible assets would still exceed the carrying amount. Should goodwill or intangible assets with indeﬁnite useful lives Goodwill and domain names have been allocated to the the lottery reseller agreements be cancelled or not be extended for further periods when they expire, an impairment loss would be Australian Internet Lottery cash-generating unit which is an recognised up to the maximum carrying value of $11,298,000. operating segment. The recoverable amount of the cash-generating unit is based on a value-in-use calculation using a discounted cash flow model based on a one year projection approved by management and extrapolated over a ﬁve year period using a steady rate, together with a terminal value. The growth rate used in these projections does not exceed the historical growth rate of the relative cash- generating unit. Key assumptions used for value-in-use calculation of the CGU are as follows: — Annual growth rate of 3% (2016: 3%); — Terminal growth rate of 3% (2016: 3%); — Discount rate of 17% being the calculated weighted average cost of capital based on the capital asset pricing model (2016: 17%); and Recognition and measurement Goodwill Goodwill represents the excess of the cost of the business combination over the Group’s share of the net fair value of the identiﬁable assets, liabilities and contingent liabilities acquired. Goodwill is not amortised but is measured at cost less any accumulated impairment losses. Goodwill is tested for impairment annually, or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill acquired is allocated to each of the cash-generating units expected to beneﬁt from the combination’s synergies. Impairment is determined by assessing the recoverable amount of the cash- generating unit to which the goodwill relates. Impairment losses on — Reseller agreements will be renewed as and when they expire. goodwill cannot be reversed. Management determined projections based on past performance Intellectual Property and its expectations for the future. The growth rate used is Acquired intellectual property is stated at cost, and is measured at consistent with those used in industry reports. The discount rate cost less any accumulated impairment losses. Intellectual property used is pre-tax and is speciﬁc to the relevant segment in which the is considered to have an indeﬁnite useful life and is not amortised. unit operates. The carrying value of intellectual property is tested for impairment annually, or more frequently if events or changes in circumstances Internet Lotteries Australia CGU is estimated to be $80,576,000 indicate that the carrying value may be impaired. Impairment losses which exceeds the carrying amount of goodwill, domain names and are recognised in proﬁt or loss. Any reversal of impairment losses of other intangible assets by $69,278,000. If a discount rate of 20% intellectual property is recognised in proﬁt or loss. and growth rate of 0% was used instead of 17% and 3% respectively, the recoverable amount of goodwill, domain names and other 60 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 Website Developments Costs unpaid. These amounts are unsecured and have seven to 30 day Expenditure during the research phase of a project is recognised as payment terms. an expense when incurred. Development costs are capitalised only when technical feasibility studies identify that the project will deliver future economic beneﬁts and these beneﬁts can be measured reliably. Development costs have a ﬁnite life and are amortised on a straight-line basis matched to the future economic beneﬁts over the useful life of the project of three years up to 30 June 2015 and ﬁve years from 1 July 2015. Domain Names Acquired domain names are stated at cost and are considered to have indeﬁnite useful lives and are not amortised. The useful life is assessed annually to determine whether events or circumstances continue to support an indeﬁnite useful life assessment. The carrying value of domain names is tested semi-annually at each reporting date for impairment. Impairment of assets Assets are tested for impairment at the end of each reporting period or whenever events or changes in circumstances indicate that the carrying amount may not be recovered. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identiﬁable cash flows which are largely independent of the cash flows from other assets or groups of assets (CGUs). The recoverable amount is the greater of the asset’s fair value less costs to sell and value-in-use. In assessing value-in-use, the (i) Employee beneﬁts Liabilities for wages and salaries, including non-monetary beneﬁts, annual leave and accumulating sick leave expected to be settled within 12 months of the end of the reporting period are recognised in other liabilities in respect of employees’ services rendered up to the end of the reporting period and are measured at amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised when leave is taken and measured at the actual rates paid or payable. (ii) Superannuation Employees have deﬁned contribution superannuation funds. Contributions are recognised as expenses as they become payable. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available. (iii) Termination beneﬁts Termination beneﬁts are payable when employment is terminated before the retirement date, or when an employee accepts voluntary redundancy in exchange for these beneﬁts. The Group recognises termination beneﬁts as an expense and a liability on the earlier of when the Group: — Can no longer withdraw the offer and the beneﬁts; and — Recognises costs for restructuring under AASB 137 Provisions, Contingent Liabilities and Contingent Assets and which involves the payment of termination beneﬁts. Beneﬁts falling due more than 12 months after the end of the reporting period are discounted to present value. estimated cash flows are discounted to their present value using a Note 12: Employee beneﬁt obligations pre-tax discount rate that reflects market assessments of the time value of money and the speciﬁc risks of the asset. Impairment losses are recognised in the proﬁt or loss. Non-ﬁnancial assets other than goodwill that incur impairment are reviewed for possible reversal of impairment at each reporting period. Note 11: Trade and other payables CURRENT Long service leave NON-CURRENT Consolidated Long service leave 2017 2016 Note $’000 13,009 $’000 12,239 Total trade and other payables Included in the above: Trade creditors GST payable Sundry creditors and accrued expenses Employee beneﬁts Customer funds payable 7 1,029 378 3,312 795 5,514 7,495 1,020 266 3,156 742 5,184 7,055 13,009 12,239 Balance at the beginning of the year Provisions made during the year Balance at the end of the year Consolidated 2017 2016 $’000 $’000 293 281 277 570 271 552 Make good pro- vision $’000 - 24 24 Recognition and measurement Trade and other payables represent liabilities for goods and Recognition and measurement (i) Long service leave Liabilities for long service leave are not expected to be settled wholly within 12 months after the end of the reporting period. They services provided to the Group prior to the year end and which are are recognised as part of the provision for employee beneﬁts and JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 61 measured as the present value of expected future payments to be made in respect of services provided by employees to the end of the reporting period. Consideration is given to expected future salaries and wages levels, experience of employee departures and periods of service. Expected future payments are discounted using corporate bond rates at the end of the reporting period with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. 62 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 Capital and ﬁnancial risk management IN THIS SECTION Capital and ﬁnancial risk management provides information about the capital management practices of the Group and shareholder returns for the year, discusses the Group’s exposure to various ﬁnancial risks, explains how these affect the Group’s ﬁnancial position and performance and what the Group does to manage these risks. Note 13: Capital risk management Note 14: Dividends Note 15: Equity and reserves Note 16: Borrowings Note 17: Financial risk management Page 63 Page 63 Page 63 Page 64 Page 64 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 63 Note 13: Capital risk management (b) Dividends not recognised at the end of the reporting period Total borrowings Less: cash and cash equivalents Net debt Total equity Total capital Gearing ratio Consolidated 2017 2016 Note $’000 $000 16 7 - - (35,825) (18,251) - - 15 45,492 24,696 Consolidated 2017 2016 $’000 $’000 Special fully franked dividend of 15.0 (2016:nil) cent per share franked at the tax rate of 30% was declared by the directors on 12 July 2017 and paid on 8 August 2017 7,691 - In addition to the above dividends, since year 45,492 24,696 end the Directors have recommended the 0% 0% payment of a ﬁnal 2017 fully franked ordi- The Group’s objective is to maintain a strong capital base so as to nary dividend of 5.0 (2016: 5.0) cent per share franked at the rate of 30% (2016: 30%). The aggregate amount of the proposed dividend maintain investor, creditor and market conﬁdence and sustain future expected to be paid on 22 September 2017, but development of the business. not recognised as a liability at year end, is: 2,564 2,203 The Group monitors its capital structure by reference to its gearing ratio. This ratio is calculated as total net debt divided by total (c) Franked dividends capital. Net debt is calculated by as total borrowings less cash and cash equivalents (up to a minimum of zero). Total capital is net debt plus total equity. There were no changes in the Group’s approach to capital management during the year. Consolidated 2017 2016 $’000 $’000 Note 14: Dividends (a) Ordinary shares Final fully franked ordinary dividend of 5.0 (2015: 1.5) cent per share franked at the tax rate of 30% (2015: 30%) Interim fully franked ordinary dividend of 3.5 (2016: 2.0) cent per share franked at the tax rate The franked portions of dividends paid and recommended after 30 June 2017 will be franked out of existing franking credits or out of franking credits arising from the payment of income tax in Consolidated the year ending 30 June 2017. 2017 2016 Franking credits available for subsequent ﬁnan- $’000 $’000 cial years based on a tax rate of 30% (2016: 30%): 12,173 9,981 2,203 881 as at the reporting date adjusted for: The above amounts represent the balance of the franking account of 30% (2016: 30%) Total dividends paid or provided for 1,542 3,745 663 1,544 Dividends paid in cash or satisﬁed by the issue of shares under the dividend reinvestment plan during the years ended 30 June 2017 and 30 June 2016 were as follows: Paid in cash Satisﬁed by issue of shares 3,745 1,544 - - 3,745 1,544 (i) Franking credits that will arise from the payment of the amount of the provision for income tax, and (ii) Franking debits that will arise from the payment of dividends recognised as a liability at the reporting date. The impact on the franking account of the dividends paid and recommended by the directors since the end of the reporting period, but not recognised as a liability at the reporting date, will be a reduction in the franking account of $4,395,000 (2016: $944,000). Note 15: Equity and reserves (a) Contributed equity Issued shares Consolidated Consolidated 2017 2017 2016 2016 Shares $’000 Shares $’000 Ordinary shares – fully paid 50,674,265 45,492 44,064,579 29,827 64 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 Movements in ordinary share capital Details Opening balance 1 July 2015 On-market share buyback Balance 30 June 2016 Opening balance 1 July 2016 Off-market share issue to Tatts Consolidated Shares 44,202,560 (137,981) 44,064,579 44,064,579 6,609,686 $’000 29,970 (143) 29,827 29,827 15,665 Balance 30 June 2017 50,674,265 45,492 Available-for-sale ﬁnancial asset reserve The available-for-sale ﬁnancial asset reserve comprises changes in the fair value of available-for-sale investments which are recognised in other comprehensive income including when investments are sold or reclassiﬁed. Note 16: Borrowings (a) Facilities with Banks Consolidated 2017 2016 Note $’000 $’000 550 300 550 300 (426) (295) 129 (405) (295) 150 Issued capital represents the amount of consideration received for securities issued or paid for securities bought back by Jumbo. Costs directly attributable to the issue of new shares or options are deducted from the consideration received, net of income taxes. (b) Ordinary shares Credit facility Bank guarantees Commercial card Facilities utilised Ordinary shares have no par value and the company does not have Bank guarantees 27 a limited amount of authorised share capital. Ordinary shareholders are entitled to participate in dividends and the proceeds on winding up of the Company in proportion to the number of and amounts paid on the shares held. Every ordinary shareholder present at a meeting in person or by proxy is entitled to one vote on a show of hands and upon a poll each share is entitled to one vote. (c) Options Commercial credit card Amount available The facilities are provided by Australia and New Zealand Banking Group Limited subject to general and speciﬁc terms and conditions being set and met periodically. There were no outstanding interest bearing liabilities for the ﬁnancial year ended 2017 (2016: nil). (i) Details of the employee option plan, including details of options issued, exercised and lapsed during the ﬁnancial year and options (b) Assets pledged as security outstanding at the end of the ﬁnancial year are set out in note 24: The bank facilities are secured by a ﬁxed and floating charge over Share-Based Payments. (ii) For information relating to share options issued to third parties during the ﬁnancial year, refer to note 24: Share-Based Payments. all the assets of the Group. (c) Defaults and breaches There have been no defaults or breaches during the ﬁnancial year ended 30 June 2017. (d) Reserves Nature and purpose of reserves Note 17: Financial risk management Proﬁts appropriation reserve The proﬁts appropriation reserve records accumulated proﬁts The Group has exposure to a variety of ﬁnancial risks including available for distribution at the Directors’ discretion. In June 2010, market risk (foreign exchange risk and interest rate risk), credit there was a change in the test for payment of dividends from a ‘proﬁt risk and liquidity risk. Risk management is performed by a central test’ to ‘solvency test’ (s254T Corporations Act 2001), and the proﬁts Treasury function on behalf of the Group under Treasury Policies appropriation reserve was established to ensure the accumulated approved by the Board annually. Speculative activities are strictly losses up until then were ‘ring-fenced’ and that future proﬁts were prohibited. Compliance with the Treasury Policies is monitored on available for distribution, in particular for dividend payments. an ongoing basis through regular reporting to the Board. Share-based payments reserve The share-based payments reserve records items recognised as (a) Market risk Market risk is the risk that adverse movements in foreign exchange expenses on the fair value of share-based remuneration provided to and interest rates will affect the Group’s ﬁnancial performance employees. This reserve can be reclassiﬁed as retained earnings if or the value of its holdings of ﬁnancial instruments. The Group options lapse. Foreign currency translation reserve The foreign currency translation reserve records the foreign measures market risk using cash flow at risk. The objective of risk management is to manage the market risks inherent in the business to protect proﬁtability and return on assets. exchange differences arising on translation of investments in foreign (i) Foreign exchange risk controlled subsidiaries. Amounts are reclassiﬁed to proﬁt or loss when an entity is disposed of. Exposure to foreign exchange risk Foreign exchange risk arises from commercial transactions (transactional risks) and recognised assets and liabilities JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 65 (translational risks) that are denominated in or related to a currency (b) Credit Risk that is not in the Group’s functional currency. The Group’s foreign Credit risk is the risk of ﬁnancial loss to the Group if a customer or exchange risk relates largely to the Fiji Dollar (FJ$). The foreign counterparty to a ﬁnancial instrument fails to meet its contractual exchange risk to the Euro (€) has ceased with the discontinued obligations. Credit risk arises principally from cash and cash operation in Germany (see note 6 for details). equivalents and trade and other receivables. Risk management Treasury monitor the Group’s exposure regularly and utilise the spot market to buy and sell speciﬁed amounts of foreign currency to manage this risk. Transactional risks are managed predominantly within the Group’s pricing policies through the regular review of prices in foreign currency. The maximum exposure to credit risk, excluding the value of any collateral or other security, at the end of the reporting period to recognised ﬁnancial assets, is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the statement of ﬁnancial position and notes to the ﬁnancial statements. Assets are pledged as security as detailed in note 16(b). Sensitivity on foreign exchange risk Any movement in foreign exchange rates would not be signiﬁcant to the Group. (ii) Interest rate risk Exposure to interest rate risk The Group’s has interest bearing assets and therefore its income and operating cash flows are subject to changes in market interest rates. Credit risk is managed on a Group basis through the Board approved Treasury Policies and is reviewed regularly by the Board. The Board monitors credit risk by actively assessing the rating quality and liquidity of counter parties: — Surplus funds are only invested with banks and ﬁnancial institutions with a Standard and Poor’s rating of no less than A and to a limited amount at any one ﬁnancial institution: — All potential customers are rated for credit worthiness taking into account their size, market position and ﬁnancial standing, and At the reporting date, the Group has exposure to the following the risk is measured using debtor aging analysis; and interest rates: — Customers that do not meet the Group’s strict credit policies may only purchase in cash or using recognised credit cards. Consolidated 2017 2016 (c) Liquidity risk Rate1 % $’000 1.93 43,320 43,320 Rate1 % 2.85 $’000 19,294 19,294 Liquidity risk is the risk that the Group will encounter difﬁculties in meeting the obligations associated with its ﬁnancial liabilities. The Group manages liquidity risk by monitoring forecast cash flows and ensuring that adequate cash balances are maintained to meet its liabilities when due. The following table summarises the contractual timing of undiscounted cash flows of ﬁnancial instruments: Deposits Net exposure to interest rate risk 1weighted average interest rate Risk management The Group manages cash flow interest rate risk by using term deposits with banks for various periods. The weighted average maturity of outstanding term deposits is approximately 20 days (2016: 33 days). Term deposits currently in place cover approximately 84% (2016: 79%) of the total cash and cash equivalent balances. Sensitivity on market risks The following table summarises the gain/(loss) impact of a 200 basis points (bps) interest rate change on net proﬁt and equity before tax, with all other variables remaining constant, as at 30 June 2017: Consolidated Effect on proﬁt Effect on equity (before tax) (before tax) 2017 2016 2017 2016 866 506 866 506 (866) (506) (866) (506) 200 bps movement in interest rates 200 bps increase in interest rates 200 bps decrease in interest rates 2017 Financial assets Cash and cash equiva- lents Trade and other receiv- ables Financial liabilities Trade and other paya- bles Between 6 Total Less than months and Between 1 Over 5 carrying 6 months 1 year and 5 years years amount $’000 $’000 $’000 $’000 $’000 43,320 - 448 43,768 100 100 13,009 13,009 - - - - - - - - - - - - 43,320 548 43,868 13,009 13,009 66 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 Between 6 Total Less than months and Between 1 Over 5 carrying 6 months 1 year and 5 years years amount $’000 $’000 $’000 $’000 $’000 25,306 - 568 25,874 100 100 12,239 12,239 - - - - - - - - - - - - 25,306 668 25,974 12,239 12,239 2016 Financial assets Cash and cash equiva- lents Trade and other receiv- ables Financial liabilities Trade and other paya- bles (d) Fair value hierarchy The fair value of cash, cash equivalents and non-interest bearing ﬁnancial assets and liabilities approximates their carrying value due to their short term maturity. The fair value of ﬁnancial instruments that are not traded in an active market (for example, unlisted investments) are determined using valuation techniques. The valuation techniques maximise the use of observable market data where possible and rely as little as possible on entity speciﬁc estimates. The Group measures and recognises the following assets and liabilities at Fair Value through Other Comprehensive Income on a recurring basis: — Available-for-sale ﬁnancial assets The fair value of unlisted equity securities is estimated by discounting the estimated future cash flows at the estimated weighted average cost of capital. AASB 13 Fair Value Measurement requires disclosure of fair value measurements by level in the fair value measurement hierarchy as follows: — Level 1 - the instrument has quoted prices (unadjusted) in active markets for identical assets or liabilities — Level 2 - a valuation technique is used using inputs other than quoted prices within Level 1 that are observable for the ﬁnancial instrument, either directly (i.e. as prices), or indirectly (i.e. derived from prices) — Level 3 - a valuation technique is used using inputs that are not observable based on observable market data (unobservable inputs). The carry values of loans to key management personnel at variable interest rate approximates its fair value. JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 67 Group structure IN THIS SECTION Group structure provides information about particular subsidiaries and associates and how changes have affected the ﬁnancial position and performance of the Group. Note 18: Controlled subsidiaries Note 19: Parent disclosures Page 68 Page 68 68 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 Note 18: Controlled subsidiaries The Group’s subsidiaries that were controlled during the year and When the Group ceases to have control, joint control or signiﬁcant influence, any retained interest in the entity is remeasured to its fair prior years are set out below: Percentage Ownership Country of Incor- 2017 2016 poration % % Direct subsidiaries of the ultimate parent entity Jumbo Interactive Limited: Benon Technologies Pty Ltd TMS Global Services Pty Ltd Jumbo Ventures Pty Ltd1 Intellitron Pty Ltd Jumbo Lotteries Pty Ltd Jumbo Interactive Asia Pty Ltd Australia Australia Australia Australia Australia Australia Cook Islands Tattslotto Pty Ltd Cook Islands Jumbo Interactivo de Mexico SA de CV Jumbo Interactive GmbH2 Mexico Germany 1the company was de-registered 17 August 2016 100 100 - 100 100 100 1 100 - 100 100 100 100 100 100 1 100 100 2the company was placed in voluntary administration 31 March 2017 value with the change in carrying amount recognised in the proﬁt or loss. This fair value becomes the initial carrying value for the purposes of subsequently accounting for the retained interest as an associate, joint venture or –available-for-sale ﬁnancial asset. In addition, any amount previously recognised in other comprehensive income in respect of that entity, are accounted for as if the Group had directly disposed of the relative assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassiﬁed to proﬁt or loss. If the ownership interest in an associate or a joint venture is reduced, but signiﬁcant influence or control is retained, only a proportionate share of the amounts previously recognised in other comprehensive income are reclassiﬁed to proﬁt or loss, where appropriate. Note 19: Parent disclosures The parent and ultimate parent entity within the Group is Jumbo Interactive Limited. (a) Summary ﬁnancial information The individual ﬁnancial statements for the parent entity show the following aggregated amounts as follows: Subsidiaries of TMS Global Ser- vices Pty Ltd: TMS Global Services (NSW) Pty Ltd Australia TMS Global Services (VIC) Pty Ltd Australia TMS Fiji Limited TMS Fiji On-Line Limited Fiji Fiji TMS Global Services (PNG) Limited Papua New Guinea Cook Islands Tattslotto Pty Ltd Cook Islands Jumbo Lotteries USA Limited3 United States of America 100 100 100 100 100 99 - Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Net assets 100 100 100 100 100 99 Issued capital 2017 $’000 17,471 24,164 41,635 641 7,046 7,687 33,948 45,492 2016 $’000 4,001 9,822 13,823 1,043 10,218 11,261 2,562 29,970 100 Retained earnings/(accumulated losses) (26,037) (26,037) Proﬁts appropriation reserve Jumbo Lotteries North America, Inc. United States of America 100 100 Other reserves 3the company was de-registered 27 February 2017 Total shareholders’ equity Principles of consolidation The consolidated ﬁnancial statements comprise the ﬁnancial statements of Jumbo Interactive Limited and its subsidiaries at 30 June each year (‘the Group’). Subsidiaries are entities over which the Group has control. The Group has control over an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity, and has the ability to use its power to affect those returns. Subsidiaries are consolidated from the date on which control is transferred to the Group and are deconsolidated from the date on which control ceases. All intercompany balances and transactions, including unrealised proﬁts arising from intragroup transactions have been eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Changes in ownership interests Proﬁt for the year Total comprehensive income for the year (b) Guarantees The parent entity has provided guarantees to third parties in relation to the obligations of controlled entities in respect to banking facilities. The guarantees are for the terms of the facilities per note 16: Borrowings, and are ongoing. The parent entity has also provided a guarantee in favour of Tattersalls in respect of payment obligations of a subsidiary company in terms of the Agent reseller agreements, between its subsidiary and the favouree. (c) Contractual commitments 15,736 (1,243) 33,948 19,317 19,317 164 (1,392) 2,562 925 925 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 69 There were no contractual commitments for the acquisition of property, plant and equipment entered into by the parent entity at 30 June 2017 (2016: $0). (d) Contingent liabilities The parent entity has no contingent liabilities other than the guarantees referred to above. Recognition and measurement The ﬁnancial information for the parent entity, Jumbo Interactive Limited, has been prepared on the same basis as the consolidated ﬁnancial statements, except as set out below: (i) Investments in subsidiaries and associates Investments in subsidiaries and associates are accounted for at cost in the ﬁnancial statements of Jumbo Interactive Limited. Dividends received from associates are recognised in the parent entity’s income statement, rather than being deducted from the carrying amount of these investments. (ii) Tax consolidation Jumbo Interactive Limited and its wholly owned subsidiaries have implemented the tax consolidation legislation for the whole of the ﬁnancial year. Refer to note 4 for details. 70 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 Other information IN THIS SECTION Other information provides information on other items which require disclosure to comply with Australian Accounting Standards and other regulatory pronouncements however are not consider critical in understanding the ﬁnancial performance or position of the Group. Note 20: Investments accounted for using the Equity Method Note 21: Available-for-sale ﬁnancial assets (non-current) Note 22: Related party transactions Note 23: Key Management Personnel compensation Note 24: Share-based payments Note 25: Remuneration of auditors Note 26: Summary of other signiﬁcant accounting policies Page 71 Page 71 Page 71 Page 72 Page 72 Page 74 Page 74 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 71 Note 20: Investments accounted for using the Equity Method Interest in Associate – Lotto Points Place of busi- Plus Inc., ness/ Country of USA Incorporation 2017 2016 2017 2016 % % $’000 $’000 Unlisted shares Lotto Points Plus Inc New York, USA 30.9 34.8 Net investment in associate company - - - - SIGNIFICANT JUDGEMENTS A key judgement by management is the uncertainty of future economic beneﬁts of both Sorteo Games Inc and Lottery Rewards Inc Recognition and measurement Non-current assets are classiﬁed as held-for-sale if their carrying amount will be recovered principally through a sale transaction, rather than through continuing use. After initial recognition at cost, they are measured at fair value with gains and losses recognised in other comprehensive income (available-for-sale investments reserve), until the investment is disposed of, at which time the cumulative gain or loss previously recognised in the available-for- sale reserve may be transferred within equity. Lotto Plus Inc is an investment company, with its only investment being a 21.9% shareholding (non-voting) in Lottery Rewards Inc., USA Note 22: Related party transactions (see note 21(b) for details). Recognition and measurement Associates are entities over which the Group has signiﬁcant influence but not control or joint control. Associates are accounted for in the parent entity ﬁnancial statements at cost and the consolidated ﬁnancial statements using the equity method of accounting. Under the equity method of accounting, the Group’s share of post-acquisition proﬁts or losses of associates is recognised in consolidated proﬁt or loss and the Group’s share of post-acquisition other comprehensive income of associates is recognised in consolidated other comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Dividends received from associates are recognised in the parent entity’s proﬁt or loss, Parent entity Jumbo Interactive Limited is the parent entity. Subsidiaries Interests in subsidiaries are set out in note 18. Key management personnel Disclosures relating to key management personnel are set out in note 23 and the remuneration report in the directors’ report. Transactions with related parties All transactions between related parties are on normal commercial terms and conditions at market rates and no more favourable than those available to other parties unless otherwise stated. while they reduce the carrying amount of the investment in the The following transactions occurred with related parties: consolidated ﬁnancial statements. When the Group’s share of post-acquisition losses in an associate exceeds its interest in the associate (including any long-term interests that form part of the Group’s net investment in the associates), the Group does not recognise further losses unless it has obligations to, or has made payments, on behalf of the associate. The ﬁnancial statements of the associates are used to apply the equity method. The end of the reporting period of the associates and the parent are identical and both use consistent accounting policies. Note 21: Available-for-sale ﬁnancial assets (non-current) Unlisted securities comprise investments in: (a) Sorteo Games Inc., USA. The Company owns 7% of the issued share capital of Sorteo Games Inc. Shares in Sorteo Games Inc are carried at fair value of $nil (2016: $nil). (b) Lottery Rewards Inc., USA. The Company owns 7.0% of the issued share capital of Lottery Rewards Inc – 0.2% directly and 6.8% indirectly (through Lotto Points Plus Inc – see note 20 for details). Shares in Lottery Rewards Inc are carried at fair value of $nil (2016: n/a). Elegant Properties Pty Ltd and Rosch Realty Pty Ltd are solely owned by Mr Mike Rosch, the father of Mr Mike Veverka, the CEO and executive director of the Company. Elegant Properties Pty Ltd rented an ofﬁce from the Group and provided services during the ﬁnan- cial year and Rosch Realty Pty Ltd provided an agent service during the previous ﬁnancial year. Ofﬁce rent received Services paid Consolidated 2017 $ 2016 $ 7,211 6,600 - 14,097 Consolidated 2017 $ 2016 $ Mrs Julie Rosch, the mother of Mr Mike Vever- ka, the CEO and Executive Director of the Company, is engaged as a full time employee within the Group. Salary and superannuation 82,441 82,125 72 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 Receivables from related parties The following balances are outstanding at the reporting date in Employee option plan The Jumbo Interactive Limited Employee Option Plan was ratiﬁed relation to transactions with related parties: at the annual general meeting held on 28 October 2008. Employees are invited to participate in the scheme from time to time. Options Consolidated vest when the volume weighted average share price over ﬁve 2017 $ 2016 $ consecutive trading days equals the exercise price and provided the staff member is still employed by the Group. When issued on exercise of options, the shares carry full dividend and voting rights. Trade receivables from Elegant Properties Pty Ltd (director-related entity of Mike Veverka) 1,573 1,210 Options granted carry no dividend or voting rights. Loans to/from related parties Advances to – key management personnel Consolidated 2017 2016 $ $ Third party options Options have been issued to an Australian based contractor as part of the remuneration for their services to incentivise them to procure a commercially acceptable transaction in Australia. Options vest when the volume weighted average share price over ﬁve consecutive trading days equals the exercise price and provided an acceptable transaction has been brought to the Company with 100,000 100,000 terms and conditions acceptable to the Company by 31 December 2017 failing which the options will lapse. On 7 March 2016, Jumbo Interactive Ltd made a loan to KMP Brad Fair value of options granted Board for an amount of $100,000. The loan bears interest at the Commonwealth Bank of Australia’s Home Loan Standard Variable Rate, 5.22% p.a. as at the end of the reporting period, plus a margin of 2.00% p.a., payable monthly in arrears. The capital balance is repayable by 7 March 2018. The loan outstanding at the end of the current year is unsecured (with insurance cover over the life of the borrower) and repayable by 7 March 2018. Employees There were no options granted during the 2017 ﬁnancial year. The weighted average fair value of options granted during the 2016 ﬁnancial year was 5.9 cents. The fair value at grant date was determined by an independent valuer using the Monte Carlo Simulation option pricing model that takes into account the share price at grant date, exercise price, expected volatility, option life, expected dividends, and the risk free rate. The inputs used for the Monte Carlo Simulation option pricing model for options granted Interest charged and received during the year was $7,236 (2016: nil). during the year ended 30 June 2016 were as follows: Options are granted for no consideration, have a ﬁve year life, and are exercisable when the ﬁve day volume weighted average price equals the exercise price Grant date 14 Jan 2016 18 Nov 2015 2016 Share price at grant date Exercise price Expected volatility Expected dividend yield Risk free rate $0.975 $1.75 $0.98 $1.75 48.399% 48.087% 3.08% 2.12% 3.06% 2.35% Note 23: Key Management Personnel compensation Consolidated 2017 $ 2016 $ Short term employee beneﬁts 1,799,152 1,667,998 Post employment beneﬁts Other long term beneﬁts Termination beneﬁts Share based payments 135,870 138,826 18,453 35,154 174,538 - 106,296 103,503 2,234,309 1,945,482 Further information regarding the identity of key management personnel and their compensation can be found in the Audited Remuneration Report contained in the Directors’ Report. Note 24: Share-based payments Share-based payment expenses recognised during the ﬁnancial year Consolidated 2017 $ 2016 $ Options issued under employee option plan 130,989 133,890 Options issued to third parties for services received 17,863 - 148,852 133,890 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 73 Third parties The weighted average fair value of options granted during the year was 2.0 cents (there were no options granted during the 2016 ﬁnancial year). The fair value at grant date was determined by an independent valuer using the Monte Carlo Simulation option pricing model that takes into account the share price at grant date, exercise price, expected volatility, option life, expected dividends, and the risk free rate. The inputs used for the Monte Carlo Simulation option pricing model for options granted during the year ended 30 June 2017 were as follows: Grant date Share price at grant date Exercise price Expected volatility Expected dividend yield Risk free rate 2017 2 Feb 2017 $1.650 $2.250 56.950% 4.24% 2.20% Expected volatility was determined based on the historic volatility (based on the remaining life of the option), adjusted for any expected changes to future volatility based on publicly available information. Details of options outstanding during the ﬁnancial year are as follows: 2017 Grant date price Expiry date year ing the year year ing the year year end of year end of year Exercise beginning of Granted dur- ed during the Exercised dur- during the Balance at Exercisable at Balance at Lapsed/ Forfeit- Expired KMP and staff options 3 Sep 2013 6 Nov 2013 18 Nov 2015 14 Jan 2016 Third party options $4.00 $4.00 $1.75 $1.75 3 Sep 2018 1,800,000 6 Nov 2018 400,000 18 Nov 2020 1,700,000 14 Jan 2021 500,000 - - - - 2 Feb 2017 $2.25 2 Feb 2022 - 200,000 (400,000) - (100,000) - - 4,400,000 200,000 (500,000) - - - - - - - - - - - - 1,400,000 400,000 1,600,000 500,000 200,000 4,100,000 - - - - - 2016 Grant date price Expiry date year ing the year year ing the year year end of year end of year Exercise beginning of Granted dur- ed during the Exercised dur- during the Balance at Exercisable at Balance at Lapsed/ Forfeit- Expired KMP and staff options 3 Sep 2013 6 Nov 2013 18 Nov 2015 14 Jan 2016 $4.00 $4.00 $1.75 $1.75 3 Sep 2018 2,100,000 6 Nov 2018 400,000 - - 18 Nov 2020 14 Jan 2021 - - 1,700,000 500,000 (300,000) - - - 2,500,000 2,200,000 (300,000) - - - - - - - - - - 1,800,000 400,000 1,700,000 500,000 4,400,000 - - - - - The weighted average exercise price for the year ended 30 June 2017 was $2.78 (2016: $3.18). The weighted average remaining contractual life of share options outstanding at 30 June 2017 was 2 years 6 months (2016: 3 year 4 months). 74 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 Recognition and measurement The fair value of options granted to Directors, employees and Note 25: Remuneration of auditors consultants is recognised as an expense with a corresponding During the year the following fees were paid or payable for services increase in equity (share based payments reserve). The fair value provided by the auditor of the parent entity and its related practices: is measured at grant date and recognised over the period during which the employees or consultants become unconditionally entitled to the options. Fair value is determined by an independent valuer using the Black-Scholes, Bi-nomial, and Monte Carlo Simulation option pricing models as appropriate. In determining fair value, no account is taken of any performance conditions other Audit services than those related to the share price of Jumbo Interactive Limited (“market conditions”). The cumulative expense recognised between grant date and vesting date is adjusted to reflect the Directors’ best estimate of the number of options that will ultimately vest because of internal conditions of the options, such as the employees having to remain with the Group until vesting date, or such that employees are required to meet internal sales targets. No expense is recognised for options that do not ultimately vest because internal conditions were not met. An expense is still recognised for options that do not ultimately vest because a market condition was not met. Consolidated 2017 2016 $ $ 132,408 94,946 132,408 94,946 Amounts paid/payable to BDO for audit or review of the ﬁnancial statements for the entity or any entity in the Group Taxation services Amounts paid/payable to BDO for taxation services for the entity or any entity in the Group: Review of income tax return 40,000 55,377 Where the terms of options are modiﬁed, the expense continues to Transfer pricing consulting be recognised from grant date to vesting date as if the terms had Other taxation advice never been changed. In addition, at the date of the modiﬁcation, a further expense is recognised for any increase in fair value of the transaction as a result of the change. Other services Where options are cancelled, they are treated as if vesting occurred on cancellation and any unrecognised expenses are taken Amounts paid/payable to BDO for other ser- vices for the entity or any entity in the Group: immediately to proﬁt or loss. However, if new options are substituted Accounting advice for the cancelled options and designated as a replacement on grant Export grant services date, the combined impact of the cancellation and replacement options are treated as if they were a modiﬁcation. - - 22,000 3,690 40,000 81,067 2,800 2,535 6,000 20,000 8,800 22,535 181,208 200,548 Note 26: Summary of other signiﬁcant accounting policies Other signiﬁcant accounting policies adopted in the preparation of these consolidated ﬁnancial statements are set out in relevant sections of the notes below. These policies have been consistently applied to all the years presented, unless otherwise stated. Where necessary, comparative information has been restated to conform with changes in presentation in the current year. (a) Basis of preparation (i) New, revised or amended Accounting Standards and Interpretations adopted AASB 2015-2 Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 101 This standard requires ‘decluttering’ of ﬁnancial statements which means only notes that are deemed material are included and are grouped by operating activity, and only signiﬁcant accounting policies are disclosed. (ii) New Accounting Standards and Interpretations not yet adopted AASB 15 Revenue from Contracts with Customers This standard and its consequential amendments are currently applicable to annual reporting periods beginning on or after 1 January 2018. This standard requires recognised revenue to depict JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 75 the transfer of promised goods or services to customers in an Goodwill and fair value adjustments arising on the acquisition of a amount that reflects the consideration to which the entity expects foreign entity are treated as assets and liabilities of the foreign entity to be entitled in exchange for these goods or services. This means and translated at the closing rate. that revenue will be recognised when control of goods or services is transferred, rather than on transfer of risks and rewards as is (c) Financial instruments currently the case under AASB 18 Revenue. The adoption of this (i) Non-derivative ﬁnancial assets standard is not expected to materially affect future periods. The Group initially recognises ﬁnancial assets on the trade date at AASB 16 Leases This standard and its consequential amendments are currently applicable to annual reporting periods beginning on or after 1 January 2019. This standard requires lessees to capitalise all leases on the balance sheet (subject to limited exception) and there is no longer a requirement to classify leases as either operating or ﬁnancial leases. This means that on commencement date of the lease, lessees need to measure a right-of-use asset and a lease liability. The initial adoption of this standard will impact on the ﬁnancial statements at 30 June 2020. The Group’s management has yet to assess the impact of this amendment. (b) Foreign currency transactions (i) Functional and presentation currency Items included in the ﬁnancial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The consolidated ﬁnancial statements are presented in Australian dollars, which is the Company’s functional and presentation currency. (ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates ruling at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in proﬁt or loss, except when attributable to part of the net investment in a foreign operation. Foreign exchange gains and losses are presented in proﬁt or loss on a net basis within other income or other expenses, unless they relate to borrowings, in which case they are presented as a part of ﬁnance costs. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when fair value was measured. The functional currency of the overseas subsidiaries is measured using the currency of the primary economic environment in which that entity operates. At the end of the reporting period, the assets and liabilities of these overseas subsidiaries are translated into the presentation currency of the Company at the closing rate at the end of the reporting period and income and expenses are translated at the average exchange rates for the year. All resulting exchange differences are recognised in other comprehensive income as a separate component of equity (foreign currency translation reserve). On disposal of a foreign entity, the cumulative exchange differences recognised in foreign currency translation reserves relating to that particular foreign operation is recognised in proﬁt or loss. which the Group becomes a party to the contractual provisions of the instrument. Financial assets are derecognised when the rights to receive cash flows from the ﬁnancial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership. Financial assets are initially recognised at fair value. If the ﬁnancial asset is not subsequently accounted for at fair value through proﬁt or loss, then the initial measurement includes transaction costs that are directly attributable to the asset’s acquisition or origination. On initial recognition, the Group classiﬁes its ﬁnancial assets as subsequently measured at either amortised cost or fair value, depending on its business model for managing the ﬁnancial assets and the contractual cash flow characteristics of the ﬁnancial assets. Refer to notes 20 and 21 for further details. (ii) Financial assets measured at amortisation cost A ﬁnancial asset is subsequently measured at amortised cost, using effective interest method and net of any impairment, if: — The asset is held within the business model whose objective is to hold assets in order to collect contractual cash flows — The contractual terms of the ﬁnancial asset give rise, on speciﬁed dates, to cash flows that are solely payments of principal and interest The Group assesses at each reporting date whether there is objective evidence that a ﬁnancial asset (or group of ﬁnancial assets) is impaired. Refer to notes 7 and 8 for further details. (iii) Non-derivative liabilities The Group initially recognises loans on the date when they originated. Other ﬁnancial liabilities are initially recognised on the trade date. The Group derecognises a ﬁnancial liability when its contractual obligations are discharged or cancelled or expire. Non-derivative ﬁnancial liabilities are initially recognised at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these liabilities are measured at amortised cost using the effective interest rate method. Refer to note 11 for further detail (d) Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of GST, unless the amount of GST incurred is not recoverable from the Australian Taxation Ofﬁce (ATO), in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item. 76 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 Receivables and payables are stated with the amount of GST receivable or payable included. The net amount of GST recoverable from, or payable to, the ATO is included as part of receivables or payables in the consolidated statement of ﬁnancial position. Cash flows are included in the consolidated statement of cash flows on a gross basis and the GST component of cash flows arising from investing and ﬁnancing activities, which is recoverable from, or payable to, the ATO, are classiﬁed as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the ATO. JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 77 Unrecognised items IN THIS SECTION Unrecognised items provide information about items that are not recognised in the consolidated ﬁnancial statements but could potentially have a signiﬁcant impact on the Group’s ﬁnancial position and performance. Note 27: Contingencies Note 28: Commitments Note 29: Events after the reporting date Page 78 Page 78 Page 78 78 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 Note 27: Contingencies Note 29: Events after the reporting date Contingencies relate to the outcome of future events and may result Apart from the (i) issue if 3,474.493 options to Tatts, (ii) payment in an asset or liability, however due to current uncertainty do not of a fully franked special dividend of 15 cents per ordinary share qualify for recognition. ($7,691,140), (iii) exercise of 600,000 options ($1,050,000), and (iv) ﬁnal dividend declared, as at the date of this Directors’ Report, the Estimates of the potential ﬁnancial effect of contingent directors are not aware of any matter or circumstance that has liabilities that may become payable: Consolidated 2017 2016 arisen that has signiﬁcantly affected, or may signiﬁcantly affect, the operations of the Company in the ﬁnancial years subsequent to 30 June 2017. $’000 $’000 The above items are not recognised in the ﬁnancial statements 30 Guarantees provided by the Group’s bankers 426 405 June 2017. The Group’s bankers have provided guarantees to third parties in relation to premises leased by Group companies. These guarantees have no expiry term and are payable on demand, and are secured by a ﬁxed and floating charge over the Group’s assets. Note 28: Commitments Operating lease commitments Consolidated 2017 2016 $’000 $’000 Non-cancellable operating leases contracted for but not capitalised in the consolidated ﬁnancial statements Payable Not later than one year 914 1,059 Later than one year but not later than ﬁve years 1,803 2,717 2,234 3,293 The property leases are non-cancellable leases for occupied premises at various locations ranging from month-to-month to six year terms, with rent payable monthly in advance. Options to renew leases at the end of the term range from terms of one to six years. Rent and outgoings are paid on a monthly basis with periodic pricing reviews. Recognition and measurement Leased property Leases in which a signiﬁcant portion of the risks and rewards of ownership are not transferred to the Group as lessee are classiﬁed as operating leases and payments (net of incentives received from the lessor) are charged to proﬁt or loss on a straight-line basis over the period of the lease. Make good The Group is required under terms of certain leases to restore the leased premises at the end of the lease to its original condition. A provision has been recognised for the present value of the estimated expenditure required to demolish any leasehold improvements at the end of the lease. These costs have been capitalised as part of the cost of leasehold improvements and are amortised over the shorter of the term of the lease or the useful life of the assets. Directors’ DeclarationThe Directors of the Company declare that:1. The consolidated ﬁnancial statements, comprising the Consolidated Statement of Proﬁt or Loss and Other Comprehensive Income, Consolidated Statement of Financial Position, Consolidated Statement of Changes in Equity and Consolidated Statement of Cash Flows, and accompanying notes, are in accordance with the Corporations Act 2001 and:(a) comply with Australian Accounting Standards and the Corporations Regulations 2001; and(b) give a true and fair view of the consolidated entity’s ﬁnancial position as at 30 June 2017 and of its performance for the year ended on that date.2. The Company has included in the notes to the consolidated ﬁnancial statements an explicit and unreserved statement of compliance with International Financial Reporting Standards.3. In the Directors’ opinion, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.4. The remuneration disclosures included in pages 29 to 34 of the Directors’ report (as part of the audited Remuneration Report), for the year ended 30 June 2017, comply with section 300A of the Corporations Act 2001.5. The Directors have been given the declarations by the Chief Executive Ofﬁcer and Chief Financial Ofﬁcer required by section 295A.This declaration is made in accordance with a resolution of the Directors.David K BarwickChairmanBrisbane24 August 2017JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 7980 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 Tel: +61 7 3237 5999 Fax: +61 7 3221 9227 www.bdo.com.au Tel: +61 7 3237 5999 Fax: +61 7 3221 9227 www.bdo.com.au Level 10, 12 Creek St Brisbane QLD 4000 GPO Box 457 Brisbane QLD 4001 Australia Level 10, 12 Creek St Brisbane QLD 4000 GPO Box 457 Brisbane QLD 4001 Australia INDEPENDENT AUDITOR'S REPORT INDEPENDENT AUDITOR'S REPORT To the members of Jumbo Interactive Limited To the members of Jumbo Interactive Limited Report on the Audit of the Financial Report Opinion Report on the Audit of the Financial Report We have audited the financial report of Jumbo Interactive Limited (the Company) and its subsidiaries Opinion (the Group), which comprises the consolidated statement of financial position as at 30 June 2017, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement We have audited the financial report of Jumbo Interactive Limited (the Company) and its subsidiaries of changes in equity and the consolidated statement of cash flows for the year then ended, and notes (the Group), which comprises the consolidated statement of financial position as at 30 June 2017, the to the financial report, including a summary of significant accounting policies and the directors’ consolidated statement of profit or loss and other comprehensive income, the consolidated statement declaration. of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial report, including a summary of significant accounting policies and the directors’ In our opinion the accompanying financial report of the Group, is in accordance with the Corporations declaration. Act 2001, including: (i) Giving a true and fair view of the Group’s financial position as at 30 June 2017 and of its In our opinion the accompanying financial report of the Group, is in accordance with the Corporations Act 2001, including: financial performance for the year ended on that date; and (i) (ii) Giving a true and fair view of the Group’s financial position as at 30 June 2017 and of its Complying with Australian Accounting Standards and the Corporations Regulations 2001. financial performance for the year ended on that date; and Basis for opinion (ii) Complying with Australian Accounting Standards and the Corporations Regulations 2001. We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under Basis for opinion those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the Corporations We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the Report section of our report. We are independent of the Group in accordance with the Corporations financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s with the Code. APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the with the Code. time of this auditor’s report. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Company, would be in the same terms if given to the directors as at the We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation, other than for the acts or omissions of financial services licensees. BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation, other than for the acts or omissions of financial services licensees. JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 81 Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in Key audit matters our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide Key audit matters are those matters that, in our professional judgement, were of most significance in a separate opinion on these matters. our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide Impairment assessment of Goodwill and Other Intangible Assets a separate opinion on these matters. Key audit matter How the matter was addressed in our audit Impairment assessment of Goodwill and Other Intangible Assets The Group’s disclosures in respect to intangible Key audit matter assets, including the impairment assessments of goodwill and other intangible assets are included in The Group’s disclosures in respect to intangible Note 10. assets, including the impairment assessments of goodwill and other intangible assets are included in The Group carries intangible assets of $11.574 Note 10. million as at 30 June 2017. The carrying value of intangible assets represent a significant asset of the The Group carries intangible assets of $11.574 Group. million as at 30 June 2017. The carrying value of The Group is required to annually test the amount of intangible assets represent a significant asset of the goodwill and indefinite useful life intangible assets Group. for impairment and assess other intangible assets for The Group is required to annually test the amount of impairment indicators. This annual impairment test goodwill and indefinite useful life intangible assets was significant to our audit because the goodwill and for impairment and assess other intangible assets for intangible assets balance is material to the financial impairment indicators. This annual impairment test statements and because management’s assessment was significant to our audit because the goodwill and process is complex, highly judgmental and includes intangible assets balance is material to the financial estimates and assumptions relating to expected statements and because management’s assessment future market or economic conditions. process is complex, highly judgmental and includes estimates and assumptions relating to expected future market or economic conditions. Our procedures included, amongst others: How the matter was addressed in our audit • Evaluating management’s determination of the Our procedures included, amongst others: Group’s Cash Generating Units ("CGU's") to • • • • • • • • • ensure they are appropriate, including being at a Evaluating management’s determination of the level no higher than the operating segments of Group’s Cash Generating Units ("CGU's") to the entity ensure they are appropriate, including being at a Evaluating management’s process regarding the level no higher than the operating segments of valuation of the Group’s goodwill and other the entity intangible assets Evaluating management’s process regarding the Assessing the Group’s assumptions and estimates valuation of the Group’s goodwill and other relating to forecast revenue, costs, capital intangible assets expenditure, discount rates and the life of Assessing the Group’s assumptions and estimates reseller agreements used to determine the relating to forecast revenue, costs, capital recoverable value of its assets expenditure, discount rates and the life of Assessing the historical accuracy of forecasting reseller agreements used to determine the of the Group by comparing the current year recoverable value of its assets actual results with FY16 figures included in prior Assessing the historical accuracy of forecasting year forecasts to consider whether any forecasts of the Group by comparing the current year included assumptions, that with hindsight, had actual results with FY16 figures included in prior been optimistic year forecasts to consider whether any forecasts Challenging key assumptions by performing included assumptions, that with hindsight, had sensitivity analysis on the growth rates and been optimistic discount rate assumptions used. Challenging key assumptions by performing sensitivity analysis on the growth rates and discount rate assumptions used. Other information The directors are responsible for the other information. The other information comprises the information in the Group’s annual report for the year ended 30 June 2017, but does not include the Other information financial report and the auditor’s report thereon. The directors are responsible for the other information. The other information comprises the information in the Group’s annual report for the year ended 30 June 2017, but does not include the Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. financial report and the auditor’s report thereon. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation, other than for the acts or omissions of financial services licensees. BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation, other than for the acts or omissions of financial services licensees. 82 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. Key audit matters If, based on the work we have performed, we conclude that there is a material misstatement of this Key audit matters are those matters that, in our professional judgement, were of most significance in other information, we are required to report that fact. We have nothing to report in this regard. our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide Responsibilities of the directors for the Financial Report a separate opinion on these matters. The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 Impairment assessment of Goodwill and Other Intangible Assets and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. How the matter was addressed in our audit Key audit matter The Group’s disclosures in respect to intangible Our procedures included, amongst others: assets, including the impairment assessments of goodwill and other intangible assets are included in In preparing the financial report, the directors are responsible for assessing the ability of the group to Evaluating management’s determination of the continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Group’s Cash Generating Units ("CGU's") to ensure they are appropriate, including being at a Note 10. • The Group carries intangible assets of $11.574 level no higher than the operating segments of Auditor’s responsibilities for the audit of the Financial Report million as at 30 June 2017. The carrying value of the entity • Group. intangible assets represent a significant asset of the The Group is required to annually test the amount of Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an Assessing the Group’s assumptions and estimates audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material expenditure, discount rates and the life of if, individually or in the aggregate, they could reasonably be expected to influence the economic reseller agreements used to determine the decisions of users taken on the basis of this financial report. for impairment and assess other intangible assets for impairment indicators. This annual impairment test goodwill and indefinite useful life intangible assets valuation of the Group’s goodwill and other relating to forecast revenue, costs, capital Evaluating management’s process regarding the intangible assets was significant to our audit because the goodwill and • intangible assets balance is material to the financial statements and because management’s assessment A further description of our responsibilities for the audit of the financial report is located at the Auditing and Assurance Standards Board website (http://www.auasb.gov.au/Home.aspx) at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf process is complex, highly judgmental and includes of the Group by comparing the current year Assessing the historical accuracy of forecasting • actual results with FY16 figures included in prior recoverable value of its assets estimates and assumptions relating to expected This description forms part of our auditor’s report. future market or economic conditions. Report on the Remuneration Report Opinion on the Remuneration Report year forecasts to consider whether any forecasts included assumptions, that with hindsight, had been optimistic • Challenging key assumptions by performing sensitivity analysis on the growth rates and discount rate assumptions used. We have audited the Remuneration Report included on pages 29 to 34 of the directors’ report for the year ended 30 June 2017. Other information In our opinion, the Remuneration Report of Jumbo Interactive Limited, for the year ended 30 June 2017, complies with section 300A of the Corporations Act 2001. The directors are responsible for the other information. The other information comprises the information in the Group’s annual report for the year ended 30 June 2017, but does not include the financial report and the auditor’s report thereon. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation, other than for the acts or omissions of financial services licensees. BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation, other than for the acts or omissions of financial services licensees. JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 83 Responsibilities The directors of the Company are responsible for the preparation and presentation of the Key audit matters Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Key audit matters are those matters that, in our professional judgement, were of most significance in Australian Auditing Standards. our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. BDO Audit Pty Ltd Impairment assessment of Goodwill and Other Intangible Assets Key audit matter How the matter was addressed in our audit K L Colyer The Group’s disclosures in respect to intangible Director assets, including the impairment assessments of goodwill and other intangible assets are included in Note 10. Brisbane, 24 August 2017 Our procedures included, amongst others: • Evaluating management’s determination of the Group’s Cash Generating Units ("CGU's") to ensure they are appropriate, including being at a The Group carries intangible assets of $11.574 level no higher than the operating segments of million as at 30 June 2017. The carrying value of the entity intangible assets represent a significant asset of the • Evaluating management’s process regarding the Group. The Group is required to annually test the amount of goodwill and indefinite useful life intangible assets for impairment and assess other intangible assets for impairment indicators. This annual impairment test was significant to our audit because the goodwill and intangible assets balance is material to the financial statements and because management’s assessment process is complex, highly judgmental and includes estimates and assumptions relating to expected future market or economic conditions. valuation of the Group’s goodwill and other intangible assets • Assessing the Group’s assumptions and estimates relating to forecast revenue, costs, capital expenditure, discount rates and the life of reseller agreements used to determine the recoverable value of its assets • Assessing the historical accuracy of forecasting of the Group by comparing the current year actual results with FY16 figures included in prior year forecasts to consider whether any forecasts included assumptions, that with hindsight, had been optimistic • Challenging key assumptions by performing sensitivity analysis on the growth rates and discount rate assumptions used. Other information The directors are responsible for the other information. The other information comprises the information in the Group’s annual report for the year ended 30 June 2017, but does not include the financial report and the auditor’s report thereon. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation, other than for the acts or omissions of financial services licensees. BDO Audit Pty Ltd ABN 33 134 022 870 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation, other than for the acts or omissions of financial services licensees. 84 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 Shareholder Information The Company has 51,274,265 ordinary shares on issue, each fully paid. There are 2,011 holders of these ordinary shares as at 31 July 2017. Shares are quoted on the Australian Securities Exchange under the code JIN and on the German Stock Exchange. In addition, there are an aggregate total 6,974,492 options over ordinary shares on issue but not quoted on the Australian Securities Exchange. (a) The range of fully paid ordinary shares as at 31 July 2017 Range Total Holders Units % of issued capital 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 – and over Total (b) Unmarketable parcels 582 854 291 239 45 2,011 306,896 2,380,135 2,287,679 6,035,660 40,263,895 51,274,265 Minimum $500.00 parcel at $2.76 per unit Minimum parcel size 182 Holders 81 0.60 4.64 4.46 11.77 78.53 100.0 Units 2,309 The number of shareholders holding less than the marketable parcel of shares is 81 (shares 2,309) (c) Substantial holders of 5% or more fully paid ordinary shares as at 31 July 20171: Name Vesteon Pty Ltd and associates Forager Funds Management Pty Ltd Notice date Ordinary Shares Percentage Held 12 May 2017 15 May 2017 9,101,027 4,299,289 17.8 8.5 1 as disclosed in substantial shareholder notices received by the Company (d) Voting rights The voting rights attached to each class of equity security are as follows: Ordinary shares — Each ordinary share is entitled to one vote when a poll is called, otherwise each member present at a meeting or by proxy has one vote on a show of hands. Options — Optionholders have no voting rights until their options are exercised. (e) Top 20 holders of fully paid ordinary shares as at 31 July 2017 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 85 Name Units % of Units 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. VESTEON PTY LTD JP MORGAN NOMINEES AUSTRALIA LIMITED TATTS ONLINE PTY LTD CITICORP NOMINEES PTY LIMITED BNP PARIBAS NOMS PTY LTD NATIONAL NOMINEES LIMITED RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LTD MR BARNABY COLMAN CADDICK BNP PARIBAS NOMINEES PTY LTD MR MIKE VEVERKA BOND STREET CUSTODIANS LIMITED WARAWONG PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED MR JOHN WILDE + MRS ELIZABETH WILDE MR CRAIG KUHN WESTOR ASSET MANAGEMENT PTY LTD CS FOURTH NOMINEES PTY LIMITED MR JOHN ROSAIA DOG FUNDS PTY LTD 20. ROUND ETERNAL INVESTMENTS PTY LTD Total Top 20 shareholders of ordinary fully paid shares Total remaining holders balance (f) Unquoted securities as at 31 July 2017 Options over Unissued Shares 8,912,915 7,412,579 6,609,686 2,628,539 1,973,694 1,591,870 1,100,000 1,081,000 740,952 688,112 659,435 550,000 470,472 447,996 390,000 284,258 235,290 221,000 220,000 210,000 36,427,798 14,846,467 17.38 14.46 12.89 5.13 3.85 3.10 2.15 2.11 1.45 1.34 1.29 1.07 0.92 0.87 0.75 0.55 0.46 0.43 0.43 0.41 71.04 28.96 A total of 3,500,000 options are on issue to employees and third parties for services rendered and 3,474,492 to Tatts Online Pty Ltd as part of a share issue transaction. Exercise price Expiry date Number on issue Number of holders $4.00 $4.00 $1.75 $2.25 $2.37 3 September 2018 6 November 2018 18 November 2020 2 February 2022 13 July 2018 1,400,000 400,000 1,500,000 200,000 3,474,492 5 1 8 1 1 (g) On-market buy-back There is no current on-market buy-back in effect. 86 JUMBO INTERACTIVE LTD ANNUAL REPORT 2017 Company Information Jumbo Interactive Limited ABN 66 009 189 128 www.jumbointeractive.com Directors David K Barwick (Non-Executive Chairman) Bill Lyne (Non-Executive Director) Mike Veverka (Executive Director and Chief Executive Ofﬁcer) Chief Financial Ofﬁcer David Todd Company Secretary Bill Lyne Registered Ofﬁce Level 1 601 Coronation Drive Toowong, QLD 4066 Telephone: 07 3831 3705 Facsimile: 07 3369 7844 Auditors BDO Audit Pty Ltd Level 10 12 Creek Street Brisbane, QLD 4000 Share Registrar Computershare Investor Services Pty Ltd 117 Victoria Street West End, QLD 4101 Telephone: 07 3237 5999 Facsimile: 07 3221 9227 Jumbo Interactive Limited Level 1, 601 Coronation Drive PO Box 824 Toowong, Queensland, 4066 Australia +61 7 3831 3705 www.jumbointeractive.com

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